US indices fell on Wed. after the release of the minutes of the Federal Reserve's March meetings this year, which suggest more monetary policy tightening than the market is prepared for. You can read about yesterday's trading on our GlobalNY.biz website.
William Dudley, former president of the New York Fed, said in an interview with Bloomberg that he believes the Federal Reserve Board (Fed) will have to deal many more blows to the stock market to get inflation under control.
Minutes showed that the Fed intends to start cutting its balance sheet by $9 trillion in the coming months, eventually reducing its holdings in Treasuries and mortgage-backed securities by $95 billion a month. That's a faster reduction than when the central bank undertook quantitative tightening from 2017 to 2019. In addition, there are prospects of an aggressive rate hike of 0.5% in May.
Earlier this week Deutsche Bank became the first major Wall Street bank to point to the risk of a US recession, predicting a recession by the summer of 2023 and a "temporary" 20% fall in equities.
A recent report showed that analysts at the bank expect the Fed (Federal Reserve Board) to raise rates by 50 basis points at its next three meetings, "with balance sheet tightening adding at least another 75 basis points to rate hikes", the recent report said.
Inflation may remain a problem due to both rising prices in the car, food and energy markets. Oil prices rose again from a 3-week low amid lingering supply concerns.
Also, stocks have lost ground in 2022, but losses are still relatively small: since the start of the year the S&P 500 Index is down less than 6%; the Dow Jones is down 5%; the Nasdaq Composite Index is down more than 11%.