Global Shares, Wall Street Futures Drop on Fed’s Hawkish Inflation Talk

Traders work on the floor of the New York Stock Exchange in New York City on March 30, 2022. Michael M. Santiago/Getty Images

World stocks fell and bond yields edged up on Friday as investors digested hawkish remarks by Federal Reserve Chair Jerome Powell that faster rate hikes are needed to tame surging inflation.

With inflation in the United States running well above the Fed’s 2 percent target, Powell said on Thursday that a half-point interest rate hike would be “on the table” when the policymakers meet in May, adding it would be appropriate to “be moving a little more quickly” to tighten monetary settings.

Powell’s comments about a more aggressive path toward policy normalization drove stocks to shed early gains and sell off later in the day Thursday, with the benchmark S&P 500 closing 1.5 percent down.

Investors continued to sour on stocks on Friday, with most major equities indexes declining on Friday, while crude oil prices fell more than $2 a barrel.

Selling pressure remained in bond markets, pushing U.S. two-year yields up nearly 7 basis points to 2.762 percent, the highest since 2018, and driving German two-year yields to 0.211 percent, the highest in eight years.

“We are currently seeing tremendous volatility in interest rate markets, where the kind of 10-15 basis point daily swings at the short end of the yield curve was unthinkable just a few years ago,” analysts at ING Think wrote in a note. “Driving those swings are both the commentary and actions from central bankers who look prepared to take action to prevent inflation expectations from getting out of hand.”

Yields on longer duration U.S. government securities also edged up, with the 10-year Treasury yield up over 2 basis points to 2.943 percent and the 30-year Treasury yield up 2 basis points to 2.953 percent, by 5:48 a.m. New York time.

Stocks in Europe retreated, with France’s CAC 40 slipping 1.2 percent in early trading, Germany’s DAX dropping 1.2 percent, and Britain’s FTSE shedding 0.5 percent.

Wall Street futures edged down, with futures on the Dow and S&P 500 both dropping 0.33 percent, while futures contracts on Nasdaq fell 0.36 percent, by 6:18 a.m. New York time.

Some economists have warned that aggressive tightening on the part of the Fed could make a recession more likely.

Mark Zandi, Moody’s chief economist, said during a webinar Tuesday that the risk of the U.S. economy tipping into a recession “at some point over the next 12, 18, 24 months is very high, uncomfortably high. And I’d say [it’s] rising.”

That dovetails with an earlier Goldman Sachs prediction that put the odds of a recession at 35 percent.

Bankrate Senior Economic Analyst Mark Hamrick told The Epoch Times in an emailed statement that “the negative narrative surrounding the economy, weighing on consumer sentiment, is mostly about the historic surge of inflation and the gap between wages and high prices.”

Prices have risen faster than wages, effectively giving many Americans a pay cut and eroding the purchasing power of households.

“At the same time, U.S. economic growth this year is forecast above trend, despite significant global headwinds, fading fiscal stimulus, supply chain disruptions, oh, and the pandemic which hasn’t come to an end,” Hamrick added.

Russia’s invasion of Ukraine and its associated rise in global inflation expectations have led the Conference Board to downgrade its estimate for U.S. economic growth to 1.5 percent in the first quarter of 2022 (quarter-over-quarter, annualized rate), while year-over-year annualized GDP growth for all of 2022 is expected to come in at 3.0 percent.