Fed Rate Hike May Be Sooner Than Expected

Nasdaq posts biggest loss since February 2021; Treasuries climb

In the minutes from its latest meeting on Wednesday, Jan. 5, the Federal Reserve indicated that it might fast track its plans to increase interest rates due to the strong economy and an inflation rate that is persistently higher than the target level, despite the rapid spread of the omicron variant of COVID-19.

The Nasdaq saw its biggest loss since February 2021 after the hawkish news, while Treasuries continued their gains, with the 10-year Treasury note crossing 1.73%. The news weighed on Nasdaq futures, while the S&P futures were flat. However, Dow Jones futures rose.

Key Takeaways

  • The Federal Reserve indicated that it might fast track its plans to increase interest rates, despite the rapid spread of the COVID-19.
  • The Nasdaq saw its biggest loss since February 2021 after the news, while Treasuries continued their gains.
  • International equity markets also declined, while bitcoin and other cryptocurrencies slid.

Overseas, European equity markets were down by 1%, while Japan's Nikkei lost 3%. Hong Kong's Hang Seng closed marginally up at 0.72%, but Korea's KOSPI was down by 1.13%. India's Sensex dipped 1.03%, while China's Shanghai Composite dropped slightly by 0.25%, and Taiwan's TAIEX was down by 0.71%. Bitcoin slid to $42,900, and other cryptocurrencies were down as well.

Initial jobless claims came in higher than expected at 207,000 for the week ended Jan. 1, 2022, totaling 7,000 more than the previous week's revised number. The services activity index, reported by the Institute of Supply Management, is expected to post 66.1 in December, a decline of 0.8 from October's reading of 66.9.

For investors looking for what the future holds, the December employment report and the upcoming earnings season may reveal the direction of the market as the Fed starts a return to a normalized monetary policy.

Article Sources
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  1. Yahoo Finance. "Nasdaq Posts Biggest Daily Drop Since Feb After Fed's 'Hawkish' Minutes." Accessed Jan 6, 2022.

  2. CNBC. "Global Markets Slump on Hawkish Fed Minutes; Tech Rout Spills to Europe." Accessed Jan 6, 2022.

  3. NASDAQ."Stocks Recalibrate After Fed Takes More Aggressive Turn." Accessed Jan 6, 2022.

  4. CNBC. "Bitcoin, Other Cryptocurrencies Slide as Global Stocks Falls on Hawkish Fed Minutes." Accessed Jan 6, 2022.

  5. CNBC. "US Weekly Jobless Claims Total 207,000, Higher Than Expected Amid Omicron Spread." Accessed Jan. 6, 2022.

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