The Federal Reserve’s upcoming actions have had an outsize effect on the stock market for some time. Monday was no different, with hawkish-sounding remarks from two Fed governors helping send the S&P 500 into the red by 0.66%.
Part of the market’s skittishness was House Speaker Nancy Pelosi’s trip to Taiwan, which the Chinese government condemned and threatened to respond to with some sort of military action.
Last week and last month were good for the market, which has for now at least turned around from the plunge in the year’s first half. The market took heart following last Wednesday’s news conference appearance of Fed Chair Jerome Powell. After the Fed upped its benchmark interest rate by 0.75 point to counter the current high inflation, Powell said that up ahead, following one more big hike, the body might slow its pace of rate boosts.
The market hopes that the Fed will ease off sooner rather than later, perhaps actually lower rates and not push the economy into a recession.
Then came a pair of more hawkish-sounding notes on Monday. San Francisco Fed President Mary Daly said the Fed was not close to finishing its rate increases. “Nowhere near almost done,” she told CNBC. And Chicago Fed President Charles Evans, in a speech, said the organization would have to keep increasing until high inflation is defeated.
The market didn’t like that tone, to say the least. As Edward Moya, senior market analyst for the Americas at OANDA Global, put the matter in a note:
“This round of Fed speak suggests markets might be a little too optimistic into pricing in a Fed pivot and that rate cut calls for next year are too optimistic.”