After a long period of calm, the market is now going back to its classic dramatic fashion, all thanks to the soaring inflation. Ever since the pandemic started, governments all around the world has unleashed huge amount of easy money in the hope of stimulating the dying economy caused by the deadly virus.
And now, vast infusions of government aid and ultra-low interest rates have helped spur demand for goods, making the prices of goods to rise. Inflation jumped at its fastest pace since the 1980s with the consumer inflation readings that have repeatedly surprised and hit 7%.
Federal Reserve Chair, Jerome Powell said that the central bank is ready to raise the interest rates in March 2022 in order to tamp down further inflation pressures. Asset purchases by the central bank will also be concluded on schedule, leaving them on track to end in “early March”.
How does this affects the market?
Selling pressure has been growing stronger and stronger for weeks as investors digest the options available to the Fed and how their decision affect the financial market and sentiment. This is because higher rate would make companies or even countries borrowing more expensive, indirectly affect the international trades.
Though most on Wall Street think the Fed may want to take a slow and steady approach, the unexpectedly high inflation reading might make the Fed to act quickly and in a more hawkish manner.
“The Fed is losing the inflation battle and is behind where it needs to be” with a painful economic consequences for the most vulnerable,” said hedge fund manager, Bill Ackman.
Looking at the recent market performance, the panic mode has certainly been activated. More volatility will be expected, so buckle up, sit tight and enjoy the ride!