Fed hints at longer rate hike timeline
Global equity markets on Tuesday fell while U.S. Treasury yields hit new highs, with investors contemplating the prospects of a longer-than-anticipated stiff monetary policy stance by the Federal Reserve. This week, Fed policymakers gave a hint that they expected to continue raising interest rates to control inflation for a longer period of time than anticipated. Since then, the market has stayed gloomy, and traders are now anticipating the Fed minutes from its most recent meeting on Wednesday. With recent data revealing stronger-than-anticipated U.S. employment and consumer price growth, the minutes will provide a view of how high officials anticipate interest rates might rise.
The yield on the benchmark 10-year note increased to its highest level since November 10 before falling to 3.9272%. But at minus 78 basis points, the yield curve between two-year and 10-year notes remained firmly inverted, signaling increased worries about an oncoming recession. Tom Plumb, portfolio manager at Plumb Balanced Fund in Madison, Wisconsin, expressed his displeasure with the news, saying, “The Fed has a conundrum because as long as individuals are working, they spend money on specific, rotating expenses like travel, house repair, etc.” “Anytime the market attempts to persuade itself that tapering or the Fed would release the brakes soon, they are hit with the harsh truth that it probably won’t happen for another six months or more.
The 50-country MSCI Global Stock Index was down 1.2%, while European equities had fallen as much as 1% before paring some of their losses and were last down 0.16%. On Wall Street, the selloff in technology, consumer discretionary, industrial, and financial stock prices drove all three major indexes lower. Oil prices dropped in a choppy session as investors profited from the gains of the previous day, outweighing supply restraints and ongoing worries about the expansion of the world economy. While U.S. West Texas Intermediate crude (WTI) for March was down 0.01% to $76.33 per barrel, Brent crude was last down 1.06% at $83.18 per barrel.
In contrast to most other major currencies, the U.S. dollar stayed unchanged, and gold prices decreased as bond yields and the dollar edged higher. The yield on the benchmark 10-year note increased to its highest level since November 10 before declining, and the yield curve between two-year and 10-year notes remained sharply inverted. Investors’ reactions to this news have been conflicted, with some maintaining optimistic and others gloomy. Traders are currently anticipating the Fed’s minutes from its most recent meeting on Wednesday to have a better understanding of how high policymakers anticipate interest rates will rise.
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