The Fed isn’t trying to wreck the stock market as it wrestles with inflation — but it isn’t going to ride to the rescue
The Federal Reserve isn’t trying to slam the stock market as it rapidly raises interest rates in its bid to slow inflation still running red hot — but investors need to be prepared for more pain and volatility because policy makers aren’t going to be cowed by a deepening selloff, investors and strategists said.
U.S. stocks fell sharply in the past week after hopes for a pronounced cooling in inflation were dashed by a hotter-than-expected August inflation reading. The data cemented expectations among fed-funds futures traders for a rate hike of at least 75 basis points when the Fed concludes its policy meeting on Sept. 21, with some traders and analysts looking for an increase of 100 basis points, or a full percentage point.
Investors are operating in an environment where the central bank’s need to rein in stubborn inflation is widely seen having eliminated the notion of a figurative “Fed put” on the stock market. Related: Do higher stock prices make it harder for the Fed to fight inflation? The short answer is ‘yes’ “They recognize that stocks can be collateral damage in a tightening cycle,” but that doesn’t mean that stocks “have to collapse,” Devitt said.
Investors got used to “the tailwind for over a decade with falling interest rates” while looking for the Fed to step in with its “put” should the going get rocky, said Courtney at Exencial Wealth Advisors.
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