The U.S. stock market’s main indexes fell on Tuesday after U.S. Federal Reserve Governor Lael Brainard said she expects rapid reductions to the central bank’s balance sheet.
The tech-heavy Nasdaq led losses as expectations of quicker interest rate hikes dulled the appeal for high-growth stocks. Amazon.com Inc, Apple Inc, and Nvidia Corp fell between 1.4% and 3.8%.
“What is spooking the market is the phrase ‘at a rapid pace’ because that implies they (Fed) will not only allow bonds to mature, but will also be selling bonds in order to get to a more neutral policy by the end of the year,” said Sam Stovall, chief investment strategist at CFRA Research in New York. “That’s what’s causing investors to be concerned – the speed and aggressiveness of the Fed with its balance sheet reductions.”
Investors now expect nearly 78.8% odds of a 50 basis points rate hike at the U.S. central bank’s meeting in May, a slight rise from 74.9% in the previous session, according to CME Group’s Fedwatch tool.
MacDailyNews Take: It’s hardly shocking that interest rate hikes are coming, yet its a good bet that the Fed still won’t move fast or high enough.
Earlier this year, Interactive Brokers founder Thomas Peterffy said, “Inflation is 7% — 1% or 2% [in interest rate hikes] doesn’t mean anything. If they really wanted to stop inflation, they would have to raise rates to 4%, 5%, 6%.”
Inflation is repudiation. — Calvin Coolidge
When a business or an individual spends more than it makes, it goes bankrupt. When government does it, it sends you the bill. And when government does it for 40 years, the bill comes in two ways: higher taxes and inflation. Make no mistake about it, inflation is a tax and not by accident. — Ronald Reagan
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