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The Federal Reserve is committed to normalizing interest rates relative to the levels of the crisis. Who can blame policymakers for wanting to reaffirm the order in an economy that no longer seems to need easy money programs and has its lowest unemployment rate since 1969?
However, Wall Street investors seem to indicate that they can not withstand the relentless rate hikes by Federal Reserve Chairman Jerome Powell.
"The market is saying that the pace is a little too fast," said Jeremy Siegel, a finance professor at the Wharton School of Business at the University of Pennsylvania, and the man who predicted the company 's business. Dow Jones Industrial Average.
DJIA, -2.21%
soon 20,000 by the end of 2015.
During an episode of CNBC's Closing Bell segment, Siegel Tuesday afternoon, said: "the market is clearly worried about the Fed's excessive tightening."
In fact, the Dow has lost about 950 points in the last two sessions, the slippage of the S & P 500 Tuesday was its worst start to Thanksgiving week since 1982 and the Nasdaq Composite Index is down 14.8%. compared to its closing record of 29 August.
The Fed is expected to significantly raise its interest rates by a quarter point at the conclusion of its two-day rate setting meeting on December 19.
However, a number of other market players have warned that the Fed's agenda is damaging the value of assets: "We are currently in a situation where the Fed will have to look at asset prices before we look at economic activity, "said Ray Dalio. The founder of Bridgewater Associates, the largest hedge fund in the world, told CNBC last week in an interview. "It's a tough position."
MarketWatch columnist Nigam Arora wrote in a recent article that the big question ahead for the markets is: "Will the Fed stay or stay on track? If the Fed stays on its current trajectory, expect the P / E to fall. "
In other words, prices are expected to fall, as the tightening of the Fed increases corporate borrowing costs. weighing on stock valuations.
Other market experts predict that signs of sluggish growth abroad – for example, sluggish economic growth in the third quarter, producing its weakest expansion since 2013 – will force the Fed to suspend plans to raise rates in 2019.
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David Bianco, director of investments for the Americas at DWS, said that "the Fed should slow down its gains, given controlled inflation and slowing future growth," in a note on November 20.
Nevertheless, Nick Timiraos and Gregory Zuckerman of the Wall Street Journal wrote on Tuesday that it was unlikely that policymakers would comply with market demand. During his speech in Dallas last week, Fed Chairman Jerome Powell acknowledged that the recent downturn in the market could reduce growth by tightening financial conditions, but he did not suggest that this should be the case. was enough for the Fed to change its political plans, "they wrote.
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While many factors contributed to the stock's fall in October and November, many also pointed to Powell's early October observation that the Fed was "far away" from a neutral rate, at least partially part of the cause of the current slide. The neutral rate is the theoretical rate at which the economy is neither stimulated nor hindered. It is at this moment that investors think that the Fed could slow down its pace of rate hikes.
MarketWatch's Steve Goldstein writes that Powell could point to a more neutral or accommodating stance around neutrality, with the Fed seeing the so-called neutral rate at around 3%, with the current Fed funds rate being between 2% and 2.25. %.
Meanwhile, the 10-year Treasury reference rate
TMUBMUSD10Y, + 0.21%
Suspended below 3.10%, which may indicate that bond investors do not expect an accelerated rate hike, even though the flight to safety has provided a floor for Treasurys. Bond prices fall as yields rise.
Perhaps the most important and influential criticism of rate increases is President Donald Trump, who criticized Powell & Co. for undermining a business-friendly program that led to a benchmark of the actions.
Powell will have the opportunity to communicate where he is on November 28 when he will speak at the Economic Club of New York at 11:30 am Eastern Time. He will appear again at Capitol Hill on December 5th in front of the Federal Open Market Committee. final convention of 2018.
Some Fed observers have warned that Trump's aggressive critics could backfire, making policy-makers reluctant to appease fear, it seems they are giving in to criticism and undermining their independence. However, investors may not be satisfied until a slowdown is anticipated.
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