Following the release of minutes from the Fed
The Nasdaq Composite index collapsed as much as 3.34% and the S&P 500 by 1.94% in one trading day on Wednesday, as stocks fell sharply following the release of the December Fed meeting minutes. Wall Street analysts see threats to US stock market growth.
Shares of the world's most expensive technology companies Apple (AAPL), Microsoft (MSFT), Alphabet (GOOGL, GOOG), Meta Platforms (Facebook) and Netflix (NFLX) fell 2.7%, 3.8%, 4.6%, 3.7% and 4% respectively on Wednesday.
In addition to the Fed's plans to accelerate cuts in bond purchases, officials predicted three interest rate hikes in 2022, after which there could be a move to reduce the huge liquidity balance sheet.
While officials did not specify when the Fed would begin writing off nearly $8.3 trillion in Treasuries and mortgage-backed securities, statements from the meeting indicated that the process could begin in 2022, possibly in the next few months.
The minutes also indicated that once the process begins, "the corresponding rate of balance sheet outflows is likely to be faster than during the previous normalisation period" in October 2017. The size of the Fed's balance sheet is significant because the central bank's bond purchases were considered a key element in keeping interest rates low while stimulating financial markets by holding down cash flow.
However, the result of this policy has been a greater and longer rise in inflation than initially expected at the Fed.
Fed officials have indicated that they forecast a rate increase to three quarters of a percentage point in 2022, as well as three more hikes in 2023 and two more next year.
Current market expectations suggest that the Fed will start to raise the benchmark interest rate in March, which means that the balance sheet reduction could start before the summer. Current data from analyst firms shows that traders believe that the next Fed rate hike will take place in June or July, followed by a third in November or December.