Investors prepare for Wednesday’s all-important Federal Reserve meeting when central bank officials unveil plans to combat persistent inflation that has roiled financial markets in recent weeks.
The S&P 500 teetered between small gains and losses in early Monday trading. In one of the index’s worst weeks, the benchmark stock index fell nearly 5%.
The move has eroded investor optimism about the bright economic outlook, extinguished short-lived stock market rally, and led some prominent investors and business leaders to say the worst may not be yet to come. It happened at the end of an increasingly alarming, volatile summer of trading. .
On Wednesday, the Federal Reserve will announce the latest hike in interest rates and, crucially, revisions to economic forecasts by policymakers. Fed Chairman Jerome H. Powell will also answer questions from reporters. His own predictions could cause stock and bond prices to rise or, as many fear, fall.
“The Fed’s meeting is important because it can influence the direction of the stock market later this year,” said Christina Hooper, chief global market strategist at Invesco. “The Fed has been the main driver of the stock market this year and is mostly in bad shape,” she said.
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One of the main drivers of the change in market mood is the evidence that inflation remains higher than expected despite the Fed’s aggressive move to lower inflation with a series of rate hikes. is. As a result, investors believe the Fed needs to raise interest rates higher and faster than they once thought, pushing up costs to businesses and consumers, slowing the economy and holding back inflation. We aim to
Yields on Fed policy change-sensitive 2-year Treasuries rose to 3.95% on Monday, their highest since 2007, continuing their impressive rise since the start of the year below 1%. Higher yields will pour into mortgages, credit cards, business loans and other borrowing costs, weighing on economic activity.
Futures trading suggests the Federal Reserve will raise interest rates by three-quarters of a percentage point on Wednesday. But a few investors are betting on a full-point rally, his biggest Fed rally since 1984, and could possibly cause the stock to plummet.
Investors will analyze Powell’s comments after the rate decision is announced. In August, he was seen as more “hawkish” and sharply focused on lowering inflation through rate hikes, even if it meant pushing the economy into a deeper recession. This is in contrast to policymakers being described as “dovish” or setting monetary policies that are more stimulating to the economy.
On Wednesday, something more serious than what investors have already heard from Mr. Powell, or is expected to see in the latest economic projects, is likely to drive down stock prices. Far from it, a more dovish trend toward the Fed’s outlook and the Chairman’s comments could boost stocks.
“He doesn’t sound dovish. He won’t sound like a dovish,” said Mark Kavanagh, rates strategist at Bank of America. “He sounds like someone committed to ensuring price stability and doing whatever it takes to achieve it.”