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Stock markets are collapsing today after the US central bank revealed it may raise interest rates sooner or faster than expected, to bring US inflation under control.
The minutes of the Federal Reserve’s December meeting, released last night, show that Fed officials were concerned about “high levels of inflation” in the United States and were planning to normalize monetary policy more quickly to fight against rising prices.
In a hawkish turn, the Fed minutes say:
Participants generally noted that, given their individual outlook for the economy, labor market, and inflation, it might become warranted to raise the federal funds rate earlier or at a faster rate than what is expected. the participants had planned before.
Officials pointed to America’s “increasingly tight labor market” and the rise in prices they attributed to imbalances in supply and demand and the reopening of the economy. US inflation hit 6.8% in December, its highest since 1982.
Some policymakers have also argued that the Fed may shrink the size of its balance sheet “relatively soon” after it begins to raise the federal funds rate. It is currently on track to end its pandemic stimulus bond purchase program in March.
The minutes spooked Wall Street, knocking the tech-focused Nasdaq Composite down more than 3% in its largest single-day decline since February.
A strong report on US jobs (US companies added 807,000 employees in December) also fueled expectations that the Fed could normalize policy faster.
Ipek Ozkardeskaya, senior analyst at Swissquote, Explain :
Yesterday was a red day for US stocks, as the FOMC minutes hinted at a faster and faster rate normalization path, and the Fed’s balance sheet shrinking soon after the first rate hike. The additional hawkish element hammered sentiment as it pushed up US yields and stocks lower. The better-than-expected ADP data certainly gave the Fed’s hawks additional support.
ADP data revealed that the US economy created more than 800,000 new private jobs in December, double the 400,000 expected by analysts, and as strong as the numbers we used to see. at the heart of the post-pandemic recovery last year. Sadly, the strong data added to the Fed’s hawkish expectations as it reinforced the Fed’s view that the US economy is close to full employment and that it is time to move on.
We are now entering a time when good data is bad because it fuels the Fed hawks, and bad data is also bad because it cannot fuel the Fed doves.
Asia-Pacific markets followed Wall Street’s lead, with Japan Nikkei 2.9% slip.
Brittany FTSE 100 The index is down more than 1% in the futures market, while European equity futures are down almost 2%.
There is a flurry of economic data ahead, which will show how the UK service sector, car dealers and manufacturers in the eurozone fared last month as the omicron wave struck. We also receive the latest report on jobless claims in the United States.
- 08:30 GMT: Euro zone construction PMI report for December
- 9am GMT: UK car sales for December
- 9:30 am GMT: UK services sector PMI report for December
- 9:30 GMT: ONS publishes weekly report on economic activity and business outlook
- 1 p.m. GMT: German inflation rate for December
- 13:30 GMT: weekly jobless claims in the United States
- 13:30 GMT: US trade report
- 3 p.m. GMT: US factory orders