On Wednesday, the minutes of the Federal Reserve’s December policy meeting revealed that the monetary authorities had turned out to be more hawkish than the market generally anticipated. They telegraphed that they could not only raise the policy rate earlier, but at a quicker pace than the official plan and revealed that they had also started to discuss how to reduce the Fed’s massive $8.8 trillion holding of government bonds. Abandoning any pretence of patience and leaving gradualism behind, the Fed spooked traders, sending the S&P 500 and the tech-heavy Nasdaq down 1.9% and 3.3% respectively, having seemingly started the new year on a strong footing. There were signs that the Omicron Covid-19 variant was less severe, labour conditions were improving and supply-chain bottlenecks easing. Speculators were betting that business conditions would not derail economic growth and/or cause more inflation than was already expected.
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By Hubert Marleau
By Hubert Marleau