Stock market pressure continues to intensify at the start of the week and is expected to continue at least until Wednesday, so the Fed may address the situation in the markets at the end of the Open Market Committee (FOMC) meeting. The Nasdaq index today completes a fall of more than 14% from its peak, and the S & P-500 completes a decline of more than 8%.
Although fear currently dominates the markets, investment managers are careful to speak in terms of panic. They keep this concept for falls of 20% of the peak or more, Rahmana Letzelen, as in the days of March 2020 when there was an extreme increase in uncertainty when supply and demand seemed together. Today the picture is different. The Fed’s massive support for the markets should come to an end in the face of half-inflation, and even if the path of interest rate hikes is not aggressive, the days of ‘every broom firing’ seem to be over in the face of the Fed’s withdrawal from expansionary monetary policy.
Market investors have internalized that the Fed is going to raise interest rates, and the question is just at what rate this will happen. Judging by US inflation data, decision-makers do not seem to have time to linger, but too rapid a rise in interest rates could weigh on the economy. B dropped to 3.9%, the Fed can direct its efforts to address inflation, which reached 7% in December.
If economists disagreed about raising interest rates on the grounds that it would not contribute to lowering inflation due to world supply disruptions, and what needs to be fixed is supply disruptions rather than interest rates – recent inflation data has revealed that inflation is driven by horizontal and not necessarily transient factors.
The market is preparing for the Fed’s interest rate announcement on Wednesday and the statement of the Open Market Committee (FOMC). It is likely that the Fed will not change a record, except in a geopolitical scenario in the Russian arena. In fact, if he changes his tone he will lose his credibility. The market is pricing 4 interest rate hikes and the first hike in March for sure. The Fed is likely to deliver a message on Wednesday that decision-makers will continue to look at inflation, and in March the central bank will raise interest rates. The Fed will also say that the tapering will then come to an end and the next step will be to reduce the bank’s balance sheet, which is close to $ 9 trillion. Fed Chairman Powell predicts the move will be launched in the second half of 2022.
Ultimately, pension savers who need the money in the foreseeable future, should be on a lower risk track in advance and therefore their exposure to declines is correspondingly low. Long-term savers will probably have more time to fix the falls.
Anyone looking for optimism can find it in the UBS reference, according to which interest rate hikes are not unequivocally negative for stocks. Since 1983, stock markets have risen by an average of 5% in the three months before the Fed raised its first interest rate. Although volatility may rise immediately after raising interest rates, stocks tend to rise another 5% in the next six months.