- Stocks rose after Federal Reserve Chairman Jerome Powell reassured investors that the Fed will keep inflation under control as the economy recovers, while also indicating that the Fed will likely begin shrinking its balance sheet in 2022.
- The S&P 500 ended a five-day losing streak, the Nasdaq 100 outperformed major benchmarks, and the dollar fell.
- The Fed chairman told the Senate Banking Committee that officials will not hesitate to act if necessary to keep price pressures in check. "If we need to raise interest rates more in the future, we will," he said. Noting that the economy was in a much stronger position than the last time the central bank reduced its balance sheet, Powell stated that no decisions had been made, but that the process would be much faster this time.
- Powell's comments follow those of other officials who advocate for the Fed to begin shrinking its $8.77 trillion balance sheet soon after it begins raising interest rates. Previous experience has shown that how the Fed manages its balance sheet matters, though the US central bank has also adapted, creating two standing repo facilities in July 2021 to help ease money-market pressures during times of stress.
- In corporate news, CVS Health stated that its full-year adjusted earnings for 2021 would be in a higher range than analysts currently expect. American Airlines Group will report higher fourth-quarter revenue than analysts predicted, as the carrier's main operations avoided the worst of the winter holiday cancellations. International Business Machines Corp. has been downgraded to 'sell' at UBS Group.
- Unfazed by the stock market's rocky start to the year, strategists ranging from Goldman Sachs to UBS reiterated their bullish calls on bets that equities can withstand higher interest rates and rising bond yields.
