A rise in interest rates has been expected by investors for some time. They’re also aware that the Fed is reducing the monthly quantity of bonds it purchases. The tapering was also expected to reduce the Fed’s approximately $9 trillion in assets over time, they said.
They weren’t prepared for all three events to occur at once.
A look at December’s minutes published Wednesday suggests that may be true.
The minutes of the meeting revealed that members were ready to begin hiking interest rates and tapering bond purchases, as well as to have high-level discussions on lowering Treasury and mortgage-backed securities holdings.
A Fed triple threat of tightening left the market reeling Wednesday, even though the steps are aimed to combat inflation and as the employment market continues to mend. In the end, stock prices recouped some of their gains from the Santa Claus Rally and then some because of a veil of uncertainty generated by the potential of an aggressive central bank.
Investors sought to decipher the Fed’s intentions on Thursday, and the markets were split.
According to Lindsey Bell, chief market strategist at Ally Financial, “the market had a knee-jerk response yesterday because it seems like the Fed is going to come fast and furious and pull liquidity out of the market.” “The market may function well in such atmosphere if they do it gradually and steadily. “It’s going to be a different scenario if they come quick and furious.”
A statement made by the Federal Reserve’s executives at the meeting said that they would continue to rely on data and convey their decisions clearly to the public.
With a much more aggressive Fed expected after almost two years of the most accommodating monetary policy in US history, there was reason for concern.
Bell thinks investors are too concerned about policy from authorities who have made it plain that they don’t want to impede the recovery or destroy financial markets.
According to her, “The Fed sounds like they’re going to be a lot more rapid in action.” “However, the truth is that we have no idea when or how they will move. Over the next several months, we’ll figure it out.”