Markets are watching whether the Federal Reserve (Fed) will rescue recently jittery stocks, Wall Street analysts warned on Monday (24th) that currently high inflation makes the chances of the Federal Reserve changing its tightening policy slim. The idea that the stock market will always be saved is dangerous.
U.S. stocks have had a difficult start this year, the market is in a panic, Russia and Ukraine may be on the verge of war, plus the Federal Reserve is about to hold an interest rate meeting and more blockbuster earnings reports will be released, the Dow Jones plunged more than 1,000 points during the session on Monday, although The index reversed and closed in the red in late trading. Its decline has fallen 6.07% so far this year. The Nasdaq has fallen 12.49% this year and is still deep in the correction zone.
The Federal Reserve will hold its two-day interest-rate policy meeting on Tuesday, with Wall Street expecting the central bank to turn more hawkish in response to rising inflation. Both Bank of America and Goldman Sachs believe the Fed will end asset purchases in the next 1-2 months and start a full balance sheet reduction around mid-year.
However, with the turmoil in U.S. stocks, investors can’t help but wonder, will the Federal Reserve try to rescue the market and reverse the current tight monetary policy?
Looking at the past history, after the Fed raised interest rates four times in 2018, the US stock market suffered the worst Christmas Eve massacre in history due to the “turbulent flow” of the US economy. Then Fed Chairman Powell announced a rate cut to appease the market.
Nick Colas, co-founder of DataTrek, believes that the Fed’s assessment of capital market stress, by any measure, is currently “far short” from the benchmarks the Fed will reconsider its monetary policy stance in 2018.
Peter Boockvar, chief investment officer at Bleakley Advisory Group, said the decline in U.S. stocks was not enough for the Fed to act, and it would be a bad move for them to bow to the market so quickly and not do anything about inflation.
“The difference this time is that the fed funds rate is near zero right now and inflation is 7%, so they have no choice but to react,” Boockvar said. “At the moment, they’re not going to make a shift for the market.” ”
Jim Chanos, a well-known Wall Street bear, warned that raising interest rates in 2018 was a big mistake by the Federal Reserve, leading to a sharp sell-off in stocks. The idea that the Fed will always bail out the market is dangerous. They won’t always bail out investors’ poor investment decisions. This really isn’t an investment policy worth sticking with for a long time.