On Monday, U.S. stock indexes reached new one-month lows, continuing a strong decline last week as investors fretted over the Federal Reserve’s intention to keep raising interest rates to combat inflation even at the expense of a slowdown in the economy.
After recent data showed that price pressures were peaking, Fed Chair Jerome Powell warned on Friday that the U.S. economy will require restrictive monetary policy “for some time” before inflation is under control, undermining hopes for more gradual rate increases.
“Markets maybe got a little bit too interpretative, between the meetings, of something that was not there,” said Mike Mussio, president of FBB Capital Partners in Bethesda, Maryland. “We were closer to a halt and perhaps a drop (in interest rates).
“I expect volatility to be elevated in the near term, certainly between now and when Fed meets in September. The market is probably going to move on any data between here and there that they think could nudge another 75-basis-point increase.”
The likelihood of a third consecutive 75-basis-point interest rate rise is priced in by money market traders at 70.5%, and they anticipate that the Fed funds rate will end the year close to 3.7%.
The August nonfarm payrolls data, one of a number of economic statistics that are expected this week, is of particular interest since any slowdown in the job market might reduce the pressure on the Fed to hike interest rates swiftly.
Heavyweight technology and growth companies including Apple Inc (AAPL.O), Microsoft Corp (MSFT.O), and Tesla Inc (TSLA.O) declined between 1.4% and 2.4% on Monday as a result of an increase in Treasury rates.
