The Fed Is Making a Mistake—and the Stock Market Will Pay the Price

We all make mistakes—but the Federal Reserve may be making a bigger one than most. That could mean another difficult year for the stock market in 2023.

Those concerns were front and center this past week, following the Federal Open Market Committee’s December meeting. The Fed didn’t do anything to surprise the market as it raised the federal-funds rate by a half-point, just as everyone expected, and suggested a terminal rate of just over 5%, a level investors had slowly come around to. But the dot plot reflected the Fed’s belief that rates would have to go high and stay high, while Chairman Jerome Powell continued to strike a hawkish tone.