The stock market tantrum to begin the year is not really about investors reassessing the economy, geopolitics in Ukraine, or even corporate earnings power. It’s about a newly engaged Federal Reserve ready to fight inflation. And soon.
Investors hope for clarity as soon as this week. The central bank’s interest rate setting committee meets for two days in the week ahead. The discussions conclude on Wednesday with the group’s statement on the state of the economy, its current reduction of buying government and mortgage-backed bonds, and an artfully phrased but probably vague outlook on its target short-term interest rate.
The markets have been repricing themselves expecting that first rate hike as soon as March. Stocks and bonds have sold off. The S&P 500 is down more than 3%. The NASDAQ has fallen more than 7% since the start of the year. The 10-year bond yield has jumped to a two-year high.
All this noise can be quieted down…
