US stocks rallied at Wednesday’s opening bell as investors await results from a Federal Reserve meeting expected to set the tone for 2022.
The big event of the day, the US central bank policy decision, is due at 2 p.m. ET (1900 GMT).
The Fed is widely expected to leave interest rates unchanged, but its accompanying statement could signal the start of an interest rate hike cycle beginning March. The central bank hasn’t hiked rates since December 2018. Interest rates hikes raise the cost of borrowing on everything from mortgages and credit cards to car loans.
Fed Chair Jerome Powell will answer the press’ questions at 2:30 pm ET and the news conference will be parsed for clues on the magnitude and pace of hikes for the year and strategy for shrinking the central bank’s roughly $9 trillion balance sheet, which more than doubled during the Covid crisis.
As most Americans are frustrated by inflation, which is raging at 40-year highs, many investors are worried about the Fed’s plans to cool inflation off.
A Gallup survey, taken January 3 to January 13, found that 49% of Americans say rising prices have caused hardship for their family, including 9% who cited “severe” hardship impacting their ability to maintain their standard of living.
Mark Cabana, head of U.S. short rate strategy at Bank of America told CNBC he expects 70% to 80% of the sell-off in stocks is due to the Fed’s move towards tighter policy.
Of note, year-to-date losses amount to 9% and 12% for the S&P 500 and Nasdaq, respectively.
“It was telling to me. This is a market that was addicted to the Fed ‘put’ and the belief the Fed always has your back,” he said. “The notion the Fed could damage the market was unfathomable.”
Meanwhile, Art Hogan, chief market strategist at National Securities in New York told Reuters: “Don’t expect any of those potential ‘black swan’ type surprises from the Fed like ending quantitative easing today or signaling a 50 basis point rate hike. The Fed having a meeting in the middle of the earnings season is unique. It may calm the waters and we’ll see a swing back quickly to the (reporting) season and that tends to be a positive.”
But David Kelly, chief global strategist for J.P. Morgan Asset Management, in a research note last week said that Fed tightening could lead to a correction in financial markets, though he said if this were to result in a U.S. recession it would be “shallow and short-lived.”
UPDATE 26/01/2022 21:57 GMT
Citing raging inflation and a strong labor market, the Federal Reserve indicated Wednesday that it could soon raise interest rates for the first time in more than three years.
As the Fed does not meet in February, it is likely to raise U.S. interest rates in March. The Fed’s rate-setting Federal Open Market Committee also confirmed that net asset purchases will end in early March.
“I think there’s quite a bit of room to raise interest rates without threatening the labor market,” Powell said at his post-meeting news conference.
Noting risks to the economic outlook remain, the US central bank also reiterated it would be prepared to adjust the stance of monetary policy as appropriate.
With reporting by Reuters, CNBC, CNN Money
