The Fed is set to begin a season of “quantitative tightening,” which is basically a way for officials to reduce the extra money they’ve pumped into the economy. Many economists say that it will cause another headwind for the stock market, likely driving up real or inflation-adjusted yields. In other news, Treasury Secretary Janet Yellen has now said she was wrong to call inflation transitory. “I think I was wrong then about the path that inflation would take,” she told CNN’s Wolf Blitzer. “There have been unanticipated and large shocks that have boosted energy and food prices, and supply bottlenecks that have affected our economy badly that I … at the time, didn’t fully understand.”

 

Market Watch/Vivien Lou Chen
Fed to begin quantitative tightening: What that means for financial markets

The Federal Reserve’s almost $9 trillion portfolio is about to be reduced starting on Wednesday, in a process intended to supplement rate hikes and buttress the central bank’s fight against inflation.

While the precise impact of “quantitative tightening” in financial markets is still up for debate, analysts at the Wells Fargo Investment Institute and Capital Economics agree that it’s likely to produce another headwind for stocks. And that’s a dilemma for investors facing multiple risks to their portfolios at the moment, as government bonds sold off and stocks nursed losses on Tuesday.

In a nutshell, “quantitative tightening” is the opposite of “quantitative easing”: It’s basically a way to reduce the money supply floating around in the economy and, some say, helps to augment rate hikes in a predictable manner — though, by how much remains unclear. And it may turn out to be anything but as dull as “watching paint dry,” as Janet Yellen described it when she was Fed chair in 2017 — the last time when the central bank initiated a similar process.

You can read the full story, here.

 

CNBC/Jeff Cox
Yellen says the administration is fighting inflation, admits she was wrong that it was ‘transitory’

Treasury Secretary Janet Yellen emphasized that the White House has several strategies ready to go that will reduce an inflation burden she conceded is too high on Americans.

In an interview Tuesday with CNBC’s Becky Quick, Yellen listed efforts aimed at prescription drug costs, the budget deficit and oil production that could bring down prices running near the fastest pace since the early days of the Reagan administration.

The remarks came the same day President Joe Biden met with Yellen and Federal Reserve Chairman Jerome Powell, whose institution has begun fighting inflation with interest rate hikes.

Continue reading, here.

 

Yahoo Finance/Brian Sozzi
Stocks: Why ‘more downside is warranted,’ according to Citi

The stock market could be pressured further if the bottom drops out of corporate profits this year amid raging inflation and Fed rate hikes, Citi warns.

“We do think more downside is warranted,” Citi strategist Jamie Fahy wrote in a new research note to clients. “The recent sell-off has been driven almost entirely by higher rates/earnings multiple de-rating. Essentially, despite concerns regarding recession, earnings per share expectations for 2022/2023 have barely changed. But to us, with quantitative tightening yet to hit full pace and earnings expectations still well above any recessionary territory, the market will remain vulnerable to further downside.”

You can read the full story, here.

 

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