Wall Street’s main indexes had a choppy start to trading on Tuesday, advancing after earlier declines as investors weight testimony from Federal Reserve Chair Jerome Powell.
The S&P 500 and Nasdaq clawed back from morning drops, building on a comeback that began late Monday.
Federal Reserve Chairman Jerome Powell told Congress in his confirmation testimony on Tuesday that if the pace of price increases fails to slow, the central bank will get more aggressive with raising short-term borrowing costs.
Worries over sooner-than-expected interest rate hikes have tempered investors’ optimism heading into the new year, placing equity markets in a risk-off mood so far in 2022. Meanwhile, Treasury yields have climbed, with the benchmark 10-year yield topping 1.8% to reach its highest level since January 2020.
“We’re seeing across the board a re-rating of what the Federal Reserve will do,” Steven Wieting, global chief investment strategist at Citi Private Bank told Yahoo Finance Live.
“The likelihood is very clear that the Fed will succeed in sinking inflation,” Wieting said. “That was going to happen one way or the other and we are just trying to gather how actively the Fed will be doing that.”
Goldman Sachs, Evercore ISI, and Deutsche Bank are now among Fed watchers repricing the Federal Reserve’s pace on rate hikes. The firms recently predicted short-term interest rates will be 100 basis points higher by the end of 2022 than where they are now.
“We revise our Fed outlook again given plummeting unemployment, strong wages, and anticipation of another hot inflation print,” said Evercore ISI’s Krishna Guha in a note.
In an interview with CNBC on Monday, JPMorgan Chief Executive Officer Jamie Dimon said he hoped for a “soft landing,” by the central bank as it gets ready to begin raising its benchmark federal funds rate in March.
“It’s going to be a little bit like threading a needle,” said Dimon, though adding that it was possible inflation is worse than the Fed believes and rates could be increased more than currently anticipated.