- Stocks lost ground and bond yields rose after Federal Reserve Chairman Jerome Powell warned that the Fed will gradually withdraw support for the economy as it tackles runaway inflation.
- The S&P 500 dipped after climbing more than 2% earlier in the day, the dollar climbed, and 10-year rates reached 1.8%
Fed's Powell said he supports a March rate hike and will not rule out a hike at every meeting while adding that inflation is "somewhat worse" than it was in December. Powell went on to say that he's inclined to raise his forecast by a "few tenths." In its statement, the Fed indicated that its first rate hike since 2018 will take place "soon," and that it anticipates a balance-sheet reduction to begin soon after.
- Swaps related to Fed meeting dates show that traders are now pricing in roughly 30 basis points of tightening at the next Fed meeting in March. The central bank generally adjusts rates in 25-basis-point increments, so that kind of pricing implies that at least a standard hike is certain, with a one-in-five chance of a 50-basis-point boost. For the entire year of 2022, a tightening of roughly 1.13 percentage points is expected.
- According to the most recent economic data, new house sales in the United States increased to a nine-month high in December. Meanwhile, the merchandise trade gap unexpectedly extended to a new high as imports continued to climb, outperforming exports.
- On the geopolitical front, the US told its citizens to consider leaving Ukraine now given the continuing tensions with Russia and the “unpredictable” security situation in the eastern European nation. Russian foreign minister Sergei Lavrov said the Kremlin will respond to any “aggressive” action by the US as an ally of Putin proposed shipping weapons to separatists. President Biden said he would consider personally sanctioning Putin if he orders an invasion of Ukraine.
