Markets fall on hot economy, chance of 0.5% rate hikes

James Bullard, president of Federal Reserve Bank of St. Louis, at the Jackson Hole economic symposium, in Moran, Wyoming, U.S., on Thursday, Aug. 22, 2019.

David Paul Morris | Bloomberg | Getty Images

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U.S. stocks are cowed by a persistently hot economy — and hawkish rhetoric from the Fed.

What you need to know today

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The bottom line

St. Louis Fed's Bullard can't rule out a 50 basis point hike at March meeting

For a while, it seemed as if markets could live with that — and even embrace it as a new normal, in which economic growth can exist comfortably with inflation higher than 2%. With each hotter-than-expected inflation report, markets rose.

Until yesterday. Markets finally caved in. The Dow Jones Industrial Average fell 1.26%, the S&P 500 lost 1.38% and the Nasdaq Composite dropped 1.78%. “It shouldn’t be a surprise to see the market take a breather as hopes of a dovish Fed in the coming months fade,” said Mike Loewengart, head of model portfolio construction at Morgan Stanley.

Indeed, it’s not just that Federal Reserve doves might be fluttering away. It’s that the hawks are swooping in. Markets had widely anticipated, and priced in, 25 basis-point interest rate hikes for the Fed’s next two meetings. Yesterday, that forecast was badly shaken.

St. Louis Federal President James Bullard said Thursday that he “was an advocate for a 50-basis-point hike and … argued that we should get to the level of rates the committee viewed as sufficiently restrictive as soon as we could.” Cleveland Fed President Loretta Mester echoed Bullard’s hawkishness, saying she wants higher rate increases. Neither Mester nor Bullard vote this year on the Federal Open Market Committee, but their sentiments could signal a Fed increasingly determined to strangle inflation.

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Correction: This report has been updated to accurately state the U.S. trading day it discusses. An earlier version used the wrong day of the week.

Source: https://www.cnbc.com/2023/02/17/stock-markets-fall-on-hot-economy-and-chance-of-0point5-rate-hikes.html