# Analysis-Weary investors see little respite to Fed hike gloom
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-11-03
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: Investors Nervous After Fed Message on Interest Rates
Meta Description: Investors face uncertainty as the US Federal Reserve sends a pessimistic message, clouding the outlook for asset prices amidst relentless interest rate hikes.
URL: https://financedigest.com/analysis-weary-investors-see-little-respite-to-fed-hike-gloomhtml

![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/2022-11-03t051025z3lynxmpeia204drtroptp4usa-stocks-1736814924828-compressed.jpg)

By Davide Barbuscia and David Randall

(Reuters) – Investors trying to navigate this year’s relentless interest rate rises have more reasons to play it safe, after a pessimistic message from the U.S. Federal Reserve [clouded the outlook](https://www.financedigest.com/digital-ad-market-shows-signs-of-life-but-economy-clouds-2023-outlook.html "Digital ad market shows ‘signs of life’ but economy clouds 2023 outlook") for asset prices.

For the better part of last month, traders plunged into [stocks and bonds on hopes that the Fed](https://www.financedigest.com/oil-dips-after-fed-comments-us-crude-stock-build.html "Oil dips after Fed comments, US crude stock build") would signal a downshift in the hawkish monetary tightening that has battered asset prices all year, taking the S&P 500 up 8% in October.

Yet Chairman Jerome Powell’s message at Wednesday’s [press conference](https://www.financedigest.com/5-top-tips-when-holding-a-crisis-press-conference.html "5 Top Tips When Holding a Crisis Press Conference") – which followed its fourth straight 75 basis-point rate increase – did little to bolster the case for a less hawkish Fed.

While Powell [signaled that future rate hikes](https://www.financedigest.com/ecbs-villeroy-rate-hike-signals-strong-confidence-in-european-banks.html "ECB’s Villeroy: rate hike signals strong confidence in European banks") may come in smaller increments, he also said the “ultimate level” of the benchmark policy rate would likely be higher than previously estimated and policymakers have “some ways to go” until inflation is defeated.

Traders were quick to react. Rates expectations in futures markets rose across the board, with the so-called terminal [rate now seen peaking](https://www.financedigest.com/bank-of-england-set-to-hike-to-4-as-rate-peak-looms.html "Bank of England set to hike to 4% as rate peak looms") at around 5.1% in June, compared with around 5.02% before the meeting began. The S&P 500 fell 2.5% while yields on the benchmark 10-year U.S. Treasury, which move inversely to prices, climbed 4 [basis points](https://www.financedigest.com/fed-officials-still-leaning-to-75-basis-point-rate-hike-in-july.html "Fed officials still leaning to 75-basis-point rate hike in July") to about 4.09%.

[“Every time that there’s been a rally in the equity markets…we talked about the need](https://www.financedigest.com/10-secrets-every-entrepreneur-needs-to-thrive-in-2023.html "10 Secrets Every Entrepreneur Needs to Thrive in 2023") to still be defensive,” said Gargi Chaudhuri, Head of iShares Investment Strategy, Americas, at BlackRock. So we’re still [remaining quite defensive equities](https://www.financedigest.com/eurozone-equity-rally-remains-on-but-ecb-set-to-change-monetary-policys-direction-of-travel.html "Eurozone equity rally remains on – but ECB set to change monetary policy’s direction of travel") …especially after this press conference.

Indeed, hopeful rallies followed by swift reversals have been a feature of asset [prices this year](https://www.financedigest.com/hong-kong-home-prices-drop-15-6-in-2022-snap-13-years-of-gain.html "Hong Kong home prices drop 15.6% in 2022, snap 13 years of gain"), during which the S&P 500 has bounced by 6% or more four times only to reverse and make a new low. The index is down 21% year-to-date.

Meanwhile, a rebound in bonds saw 10-year [Treasury yields](https://www.financedigest.com/wall-street-drops-treasury-yields-gyrate-on-fed-chairman-powells-remarks.html "Wall Street drops, Treasury yields gyrate on Fed Chairman Powell’s remarks") fall to 2.7% over the summer before soaring to 4.3% last month.

Troy Gayeski, chief market strategist at FS Investments, believes that even after the [Fed finishes hiking rates](https://www.financedigest.com/wall-street-slips-dollar-gains-as-fed-seen-hiking-rates-in-may.html "Wall Street slips, dollar gains as Fed seen hiking rates in May"), it will likely be slow in bringing them down, meaning it may be “months and quarters” before it makes sense to aggressively buy risky assets.

The [Fed wants tighter financial](https://www.financedigest.com/the-feds-rate-hike-that-wasnt-and-brexit-a-snapshot-of-global-financial-markets.html "The Fed’s rate hike that wasn’t and Brexit: a snapshot of global financial markets") conditions, it always gets what it wants,” he said. It’s a tough place to be for [fixed income](https://www.financedigest.com/ipc-and-transficc-announce-collaboration-on-fixed-income-and-derivatives-connectivity.html "IPC and TransFICC announce collaboration on fixed income and derivatives connectivity") and equities.

Of course, plenty can change between now and the [Fed’s December meeting](https://www.financedigest.com/putin-speech-sends-sterling-to-fresh-37-year-low-ahead-of-fed-boe-meetings.html "Putin speech sends sterling to fresh 37-year low ahead of Fed, BoE meetings"). [Investors are bracing](https://www.financedigest.com/investors-brace-for-rough-ride-as-evergrande-faces-payment-deadline.html "Investors brace for rough ride as Evergrande faces payment deadline") for U.S. employment data on Friday for clues on whether the [Fed’s rate hikes](https://www.financedigest.com/dollar-hits-one-month-high-against-yen-as-traders-bet-on-fed-rate-hike.html "Dollar hits one-month high against yen as traders bet on Fed rate hike") have begun to erode the economy’s strength.

The coming week also brings the monthly U.S. [consumer prices](https://www.financedigest.com/analysis-to-raise-prices-or-not-consumer-goods-makers-weigh-bets-on-buyer-strength.html "Analysis-To raise prices or not? Consumer goods makers weigh bets on buyer strength") report, which has been an important inflection point for markets as inflation has surged to its highest level in decades. Signs that inflation is beginning to slow after the [Fed’s barrage of rate hikes](https://www.financedigest.com/dollar-falls-after-fed-raises-rates-forecasts-future-hike.html "Dollar falls after Fed raises rates, forecasts future hike") could bolster the case for a less aggressive monetary policy in coming months.

Steve Bartolini, manager of the U.S. Core Bond Strategy at T. Rowe Price, took heart in the fact that smaller expected rate increases ahead reduced the [risk of a “major financial stability event” that could impair market functioning and cause dislocations in asset](https://www.financedigest.com/analysis-watch-out-risk-assets-the-rout-in-bonds-is-coming-your-way.html "Analysis-Watch out risk assets, the rout in bonds is coming your way") prices.

If “we start focusing on destination as opposed to pace, I think that’s an easier environment for the [market to handle,”](https://www.financedigest.com/outside-door-handle-market-analysis-trends-top-manufacturers-share-growth-statistics-opportunities-and-forecast-to-2027.html "Outside Door Handle Market Analysis, Trends, Top Manufacturers, Share, Growth, Statistics, Opportunities and Forecast to 2027") he said. Bartolini is becoming more bullish on mortgage-backed securities, which he expects to benefit from a decline in volatility [sparked by smaller rate](https://www.financedigest.com/shares-slip-yields-rise-as-u-s-data-sparks-rate-hike-concerns.html "Shares slip, yields rise as U.S. data sparks rate hike concerns") increases.

Others, however, believe that a sustained reversal in markets is unlikely to [come until there are clear](https://www.financedigest.com/whats-coming-next-in-the-clearing-and-settlement-world.html "What’s coming next in the clearing and settlement world?") signs that the Fed has cooled inflation and decisively slowed economic growth.

Charles Curry, managing [director](https://www.financedigest.com/anya-libova-joins-apester-as-uk-managing-director.html "Anya Libova joins Apester as UK Managing Director") and senior portfolio manager of U.S. Fixed Income at Xponance, which oversees $12 billion, is [keeping some of his powder dry for when the economy](https://www.financedigest.com/thomson-reuters-keeps-outlook-but-wary-of-slowing-economy.html "Thomson Reuters keeps outlook, but wary of slowing economy") appears to be on the verge of a serious downturn.

Until then, “it would be premature to start talking about pivots or easing or anything of that nature,” he said.

(Reporting by Davide Barbuscia and David Randall; writing by Ira Iosebashvili; editing by Megan Davies and Sam Holmes)


---
This blog is powered by Superblog. Visit https://superblog.ai to know more.
---