The 8th Interest Rate Hike From the Fed
This Wednesday, the Fed is expected to raise the interest rate for the 8th time since Q1 2022. The markets priced in positive momentum in January, but negative trends are being forecasted.
The Fed’s attitude to monetary policy doesn’t seem to undergo significant changes anytime soon. In December, it was once again highlighted by Federal Reserve Chairman Jerome Powell:
“The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.”
The Fed is set to increase interest rates by 25 basis points again, following its tightening tendency. The spree of rate hikes started in March 2022. It still continues with Jerome Powell’s desperate inflation-taming moves. This time, the new rate hike will be announced after the Fed’s two-day policy meeting on Wednesday, 2 p.m. ET.
Surprisingly, stocks in January acted as if there were no hawkish Fed announcements. The S&P 500 has gained more than 5% this year, with the final trading session of January taking place on Tuesday. The Nasdaq Composite Index rose by more than 9% last month. In 2022, the indexes fell by 19% and 33%, respectively.
Despite such a rally in January, Morgan Stanley analysts suggest a further decrease in bullish momentum under the influence of the Fed’s monetary policy tightening.
In a Monday note to clients, Morgan Stanley chief equity strategist Michael Wilson commented on stocks’ “surprisingly good start” this year: “While there have been several positive developments, we think the good news is now priced, and reality is likely to return with month end and the Fed’s resolve to tame inflation.”
The recent price action in stocks is likely prompted by China’s economy reopening after strict COVID lockdowns and an inflation decrease after recent peaks.
“We think the recent price action is more a reflection of the seasonal January effect and short covering after a tough end to December and a brutal year,” said Wilson.
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