July 7, 2022

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Stocks fall on Fed official’s hawkish comments

2 min read

STOCKS slumped on Wednesday as a US Federal Reserve policy maker said the central bank could downsize its balance sheet at an aggressive pace and raise rates steadily.

The benchmark Philippine Stock Exchange index (PSEi) dropped by 46.81 points or 0.65% to close at 7,109.26 on Wednesday, while the broader all shares went down by 16.94 points or 0.44% to 3,780.49.

“The local stock market declined for the second straight day after the latest hawkish statement from Federal Reserve Governor Lael Brainard, who said that the Fed will shrink the balance sheet at a rapid pace as soon as May 2022 and the Fed will raise interest rates steadily,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a text message.

“Philippine stocks weakened as Federal Reserve Governor Lael Brainard indicated the central bank could take a more aggressive approach to its tightening policy. On top of this, recessionary fears continued to spook investors as Deutsche Bank became the first major Wall Street bank to forecast a US recession is ahead, citing the Fed getting more aggressive to fight inflation,” Regina Capital Development Corp. Head of Sales Luis A. Limlingan said in a Viber message.

Fed Governor Lael Brainard on Tuesday said she expects a combination of interest rate increases and a rapid balance sheet runoff to bring US monetary policy to a “more neutral position” later this year, with further tightening to follow as needed, Reuters reported.

Ms. Brainard said the central bank will raise rates “methodically” and reduce its nearly $9-trillion balance sheet in an effort to lower inflation.

The hawkish tone from one of the Fed’s usually more dovish policy makers sent stocks down and Treasury yields up to multi-year highs, up some 20 basis points since Friday, as investors digested the implications of a more aggressive policy path.

The Fed raised rates last month for the first time in three years and released projections that policy rate would…

Neil

2022-04-06 09:00:59

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