Markets “In a Nutshell” for December 20, 2021
Investment Week at a Glance
Stocks finished lower for the week. The Dow Jones Industrial Average fell 1.70%, the S&P 500 was down 1.90%, and the NASDAQ fell 2.90%. Foreign stocks (MSCI EAFE) were also down, falling 0.50%. Bond prices were higher for the week, with the 10-year U.S. Treasury ending the week at 1.41%. (Data source: Wall Street Journal)
Fed Announces Faster Taper
Last week the Fed announced that they will taper asset purchases at a rate of $30 billion per month instead of the $15 billion they had previously decided. This news was expected and the market moved higher as more details about the meeting came out as Fed Chair Powell spoke. The Fed also included an outlook that may call for three rate hikes in 2022. This is one way the Fed could help slow inflation in the coming year. Although rate hikes are typically worrisome for equities, with inflation being seen as the biggest threat at the moment, a few rate hikes should not have too much of an impact. If the Fed has to raise rates quicker than expected equities may show some weakness. This is not expected because of how the Fed has recently not given any surprises to the market and continues to be transparent.
Inflation and the Economy
With inflation hitting 30-year highs and the economy recovering quickly the Fed has shifted its focus from full employment to curbing this inflation we are seeing. The current unemployment rate of 4.2% is pretty much full employment in most economists’ views. Some believe the Fed has acted too slowly on slowing inflation and that is why they are having to change the taper to try and slow the inflation we currently see. If inflation continues to rise the Fed may have to make more changes to its monetary policy to try and help the economy cool off. The market will pay close attention to how the Fed acts and how Omicron will affect these decisions as Covid cases continue to rise and be a threat to the economy.
Quiz:
Quiz
When did the Fed wait to raise rates after the financial crisis? (Scroll Down for Answer)
Answer below.
Have a Great Week!
Answer:
4) 2015, it took 7 years after the last recession for the Fed to raise rates.