Buckle up: Wild ride on Wall Street as rate rise talk spooks investors
An explosive Goldman Sachs note triggered a day of drama on Wall Street today after the investment bank warned of as many as four US Fed rate rises in 2022 alone.
The tech-heavy Nasdaq crashed by as much as 2.7 per cent in early trading, tipping it briefly into correction territory.
A late rally saw the benchmark index finish slightly up on a day when the charging bull of Wall Street proved difficult to predict.
The Nasdaq index has suffered its worst few days since February as US investors come to terms with the end of monetary stimulus.
Tech stocks have been propelled higher by the wave of stimulative monetary policy that has flooded US financial markets since the onset of the Covid-19 crisis.
However, that support is set to be pulled this year by the Fed launching a rate hike cycle to expel spiralling inflation in America.
The Fed will hoist interest rates at least four times in 2022 in a bid to tame red hot price rises that are in danger of being baked into the US economy, according to investment banking giant Goldman Sachs.
“We continue to see hikes in March, June, and September, and have now added a hike in December for a total of four in 2022” taking US interest rates to one per cent by the end of the year, Goldman said. Other analysts think the Fed could move even quicker.
“Unless financial conditions notably tighten, then all seven [Fed] meetings from March to the end of 2022 are now potentially in play,” experts at investment bank Deutsche Bank said.
Expectations that US inflation is set to climb above a 39-year high of 6.8 per cent has prompted experts to strengthen bets on Fed chair Jerome Powell leading the charge against the cost of living in America.
Both the Dow Jones and the S&P finished down on the day.
Economists think US inflation estimates released tomorrow will hit seven per cent.
The Bank of England is set to follow the Fed’s hawkish lead to get a handle on the spiralling cost of living in the UK.
ING, another bank, think there is a 50 per cent chance the Bank will lift rates again at its next monetary policy committee meeting on February 3, tightening policy further after it raised rates 15 basis points in December.
In the UK, inflation fears too weighed on investors. The FTSE 100 finished down 0.54 per cent and the domestically-focussed FTSE 250 down 1.5 per cent.