Federal Reserve Chairman Jerome Powell spoke at a hearing of the Housing Finance Commission in Washington, DC on Wednesday, December 1, 2021.
Al Drago | Bloomberg | Getty Images
US stocks resumed selling on Monday as government bond yields continued to rise. This suggests that many traders are confident that the Fed will move to raise interest rates in the coming months.
According to traders, the pressure on US equities is not due to significant economic concerns or concerns about the resurgence of the large Covid-19, but to the relocation of portfolios for a world with high borrowing costs.
As the country’s central bank, the Federal Reserve is tasked by Parliament to maximize employment and stabilize prices. The Fed will adjust short-term interest rates and other liquidity tools to keep inflation around 2% and reduce unemployment as much as possible.
If the Fed determines that the economy is close to full employment, especially if inflation is high, it will raise interest rates to make it harder for businesses to borrow and curb spending that drives inflation.
The Ministry of Labor reported in December that consumer prices for goods and services rose by more than 6% in November, the largest year-on-year increase since 1982.
Many market watchers, including Charles Schwab’s Randy Frederick, have stated that hot inflation will print everything except guaranteeing a Fed rate hike in the coming months.Central bank members already have them Plans to limit access to cash faster Than originally expected.
These expectations have raised benchmark 10-year Treasury yields in recent weeks, The last rate I saw was about 1.77% From the low of 1.4% or less in December. Fluctuations in yields over a 10-year period could ultimately have a direct impact on consumers through rising mortgage rates and car loans.
Frederick, director of trade and derivatives at the Schwab Financial Research Center, calls inflation “temporary” and is surprised by Jerome Powell’s pivot towards more restrictive monetary policy. I explained that it seems.
“Both of these are efforts aimed at combating rising inflation, and I think it went a long way and much faster. [Powell] “I was expecting it,” he said. “Interest rates may not seem to start rising until June. Now they have an 80% chance of occurring in March.”
Frederick isn’t the only idea. The latest minutes of the Federal Reserve, coupled with hot inflation and near full employment, told clients that Goldman Sachs expects to raise rates four times in 2022 than previously expected. ..
The market now believes the Fed has a 76% chance of raising interest rates at the Federal Open Market Committee’s March meeting, up from about 15% in mid-October. CME Group’s FedWatch site..
Monday’s sale will also come the day before Powell is set to appear in front of Congress for his nomination inquiry. Lael Brainard, nominated by Governor Joe Biden as the next vice-chairman of the central bank, testifies Thursday.
Parliamentarians suffering from rising prices in gas pumps and grocery stores are expected to burn Powell and his colleagues on plans to curb inflation towards the Fed’s 2% target.
However, market expectations for higher rates, or higher rates, can cause financial heartburn as traders sell government bonds and high-priced stocks.
“There are many new companies in the technology sector that tend to trade very well, with debt and leverage,” Frederick said. These companies can have a hard time keeping cash on hand “because they have to exchange at a higher rate when their debt expires”.
Of the three major US stock indexes, traders’ recent sales have focused on technology-intensive stocks. Nasdaq Composite Index.. Nasdaq is 8.5% below record highs, S & P 500 And a 2.7% drop 30 Dow Jones Industrial Averages.. Russell 2000, an index that tracks small public companies, is more than 12% below that record.
Sectors and equities have outperformed as they are considered more financially defensive and have better short-term profit expectations.Utilities like Xcel Energy When Duke Energy Acquired by a pharmaceutical company Merck When Amgen It increased by 2% and 1%, respectively.
Higher interest rates disrupt the stock market as hot inflation tests the Fed
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