This past week was momentous, as Central Banks continued to lift rates in an attempt to crush inflation. A half dozen central banks, including in the United States, Britain, Sweden, Switzerland and Norway, delivered rate hikes this week to fight inflation, but it was the Fed’s signal that it expects high U.S. rates to last through 2023 that caught markets off guard.
“There had been some optimists out there saying that inflation may be coming under control, but the Fed effectively told them to sit down and shut up,” said David Russell, VP of market intelligence at TradeStation Group. “The Fed is trying to rip the band-aid off, trying to kill inflation while the jobs market is still strong.”
So finally, I think markets are waking up to what’s happening – no immediate pivot, higher rates for longer – and even if house prices or markets fall.
Goldman slashed its year-end target for the S&P 500 to 3600 from 4300, which it had made in mid-August. “The expected path of interest rates is now higher than we previously assumed, which tilts the distribution of equity market outcomes below our prior forecast.”
“Based on our client discussions, a majority of equity investors have adopted the view that a hard landing scenario is inevitable, and their focus is on the timing, magnitude, and duration of a potential recession and investment strategies for that outlook.”
Federal Reserve chairman Jerome Powell said the US economy may be entering a “new normal” following disruptions from the COVID-19 pandemic. “We continue to deal with an exceptionally unusual set of disruptions,” Powell told business and community leaders at a Fed Listens event in Washington.
