Fed Rate Hike News: On November 2, the Federal Reserve is expected to increase interest rates once more by three-quarters of a percentage point, marking its fourth consecutive large increase. If the Fed maintains its hawkish posture and set the stage for interest rates to hit about 5% by March 2023, it may trigger the US and worldwide recession.
Despite concerns about a recession, the Federal Reserve is about to hike rates once more, and the most recent employment data is anticipated to demonstrate that salaries are still increasing and supporting inflation. For the Fed, it is unchartered territory, with such jumbo-sized rate hikes in its battle against relentless inflation.
The impact on asset classes is clearly visible with both equities and debt getting the hit. The aggressive tightening effort, which threatens to plunge the US into recession, has caused stocks to experience their largest losses since 2008 and bonds to experience their worst yearly slide on record.
The valuations of many stocks haven’t still bottomed out if future rate hikes are taken into calculation. Still, the market could be discounting future rate hikes amidst incoming economic data. Despite dismal earnings from a number of large technology companies, equities have increased from their lows of earlier this month.
US equities closed a choppy week with a significant rise as Apple Inc.’s earnings report boosted technology companies and a scattering of economic data suggested the Federal Reserve is making some headway against inflation. Both the tech-heavy Nasdaq 100 and the S&P 500 recorded their longest weekly advancing streaks since August. Both indices had a two-day fall on Friday, but gains in major technology firms like Alphabet Inc., which owns Google, and Microsoft Corp. contributed to this.
Meanwhile, are the global central banks turning dovish? At their most recent policy meetings, the Reserve Bank of Australia and the Bank of Canada both increased their benchmark rates by less than analysts’ and traders’ expectations. Investors also thought that the European Central Bank was less assertive.
75 bps is what the market expects in November and if the December rate hike also goes as per the plan, a 50 bps rate hike may spur a rally in the stocks. A lot of that will depend on the October CPI data that lands up on November 10 to let the market know how much of core inflation has been tamed till now. The stock market rally being currently witnessed is largely on account of a Fed Pivot that the market is sensing could be around the corner. Investors need to brace themselves for the volatility ahead until the economic conditions improve for a longer-term bull run in equities.