Fed Forecasts Interest Rate Hike in March Via Meeting Minutes, Market Dips Before Recovering
The Federal Open Market Committee released the minutes of its Jan. 25-26 meeting, revealing that interest rate hikes, balance sheet run-off, and an overall tightening of monetary policy could occur soon. The central bank said it will make decisions on a meeting-by-meeting basis.
“Most participants noted that, if inflation does not move down as they expect, it would be appropriate for the Committee to remove policy accommodation at a faster pace than they currently anticipate,” the minutes read.
As a result of the news, the Dow Jones Industrial Average fell 0.26% — more than 90 points — while the S&P 500 fell 0.19%, losing 4.6 points. The tech-heavy Nasdaq composite was hit the hardest, with losses of more than 68 points, or 0.48%.
“Today’s equity market reaction tells you the data today has the market fearful of a 50 basis point interest rate hike,” Huw Roberts, head of analytics and Quant Insight in London, told Reuters.
However, losses weren’t as great as many would have expected, and the S&P 500 shaved losses once the news sunk in, it seemed. The index gained back 0.3%, the Nasdaq edged up by 0.1% and the Dow remained steady.
The minutes indicated that a rate hike would not happen immediately, but could come as soon as March, CNBC.com reported. “Marketwise it’s not the barn burner it could have been,” said Michael Schumacher of Wells Fargo, per CNBC.
Meanwhile, however, in an effort to stem inflation that has reached a 40-year high, Fed officials are speeding up bond tapering with plans to conclude tapering by the end of March. A balance sheet run-off could begin later this year, according to the meeting minutes.
Investors are planning for at least six interest rate hikes in 2022, but a 50-basis point hike for next month is already priced into markets, according to Bloomberg.
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