Stock futures fall as investors digest hawkish Fed remarks and see more sanctions

U.S. stock futures fell Wednesday morning as investors saw more Western sanctions against Russia and digested hawkish remarks from key monetary policy makers. These suggested that more members of the Federal Reserve were open to moving aggressively to raise interest rates and reduce demand and persistently raised inflation levels.

Contracts on the S&P 500 fell, increasing losses after the blue-chip index ended Tuesday’s session lower by 1.3%. Contracts on each of the Dow and Nasdaq also extended declines. In the bond market, the leading 10-year government yield rose to a top 2.6%, the highest level since May 2019.

Developments in Russia’s war in Ukraine and the Western reaction remained in focus on Wednesday as the US, EU and Group of Seven prepared another round of sanctions against the Kremlin. The United States is expected to add sanctions to more Russian officials and family members and Russian-owned companies and financial institutions.

Meanwhile, hawkish comments from Federal Reserve officials also beat up U.S. stocks from their most recent march, causing government interest rates to rise.

Namely, Federal Reserve Governor Lael Brainard said Tuesday that the Federal Open Market Committee (FOMC) was “prepared to take stronger action” if already elevated indicators of inflation rates and expectations warrant such movements.

In a webcast, Brainard suggested that this could include aggressive rate hikes and a much faster pull out of the Federal Reserve’s balance sheet – which has so far risen to nearly $ 9 trillion – than in previous periods.

“Given that the recovery has been significantly stronger and faster than in the previous cycle, I expect the balance sheet to shrink significantly faster than in the previous recovery with significantly larger ceilings and a much shorter period to phase in the maximum ceilings compared to 2017- 19, “said Brainard. She noted that the process of reducing the Fed’s balance sheets or beginning quantitative easing could begin as soon as the Fed’s next meeting in May.

Other Fed members also suggested joining several short-term policy tightenings. San Francisco Fed President Mary Daly told the Financial Times on Tuesday that the case of a 50 basis point rate hike – or a rise twice as large as the central bank’s typical rise per year. meeting – “has grown.”

“The fact is that the Fed has made it very clear … it’s crucial that they go after inflation and do what it takes to sustain the rise in inflation,” Quincy Krosby, chief equity strategist at LPL Financial, told Yahoo Finance Live. “They’re going to do it, and I think the market is getting the feeling that this is going to be a choppy road.”

“The Fed can go until it breaks … but it’s clear this is their mission and they will move on with it, full steam ahead – more than 2017, more than 2018,” she added, referring to it. last. once the Federal Reserve underwent quantitative easing several years ago.

With US inflation rates still hovering around 40 years high, forcing the Fed’s hand in aggressively tightening financial conditions, some on Wall Street have downgraded their expectations of the US and global growth. Deutsche Bank economists said on Tuesday that they expected the US to tip into a recession by the end of next year as the Fed quickly raises interest rates to meet high prices.

“We now expect the US economy to be in direct recession by the end of next year, and that [Euro area] in a growth recession in 2024, where unemployment will rise, “said Deutsche Bank economists David Folkerts-Landau and Peter Hooper. time is helping to bring inflation back to mandate levels, reducing the risk of major disruptions further down the road. “

Still, economists noted that their call for a recession next year “is currently far out of consensus” – and in fact, many on Wall Street are still seeing a slowdown, but not necessarily a period of negative short-term domestic growth.

“We do not think the Fed will push the economy into recession,” Veronica Willis, investment strategy analyst at Wells Fargo Investment Institute, told Yahoo Finance Live on Tuesday. “I think most people do not expect that. But we expect a kind of slowdown in economic growth compared to what we had expected in the past, but still around the average economic growth here in the United States.”

7:16 ET: Stock futures fall

Here is where the markets traded Wednesday morning:

  • S&P 500 futures (ES = F): -38 points (-0.84%) to 4,482.25

  • Dow futures (ÅM = F): -214 points (-0.62%) to 34,336.00

  • Nasdaq futures (NQ = F): -203 points (-1.37%) to 14,625.00

  • raw (CL = F): + $ 1.42 (+ 1.39%) to $ 103.38 per barrel

  • gold (GC = F): + $ 4.70 (-0.24%) to $ 1,922.80 pr. ounce

  • 10-year Treasury (^ TNX): +8.3 bps to give 2.637%

18:10 ONE TUESDAY: Stock futures rise higher

Here’s where the markets traded Tuesday night when the overnight session began:

  • S&P 500 futures (ES = F): +5.25 points (+ 0.12%) to 4,525.50

  • Dow futures (ÅM = F): +34 points (+ 0.1%) to 34,584.00

  • Nasdaq futures (NQ = F): +25.75 points (+ 0.17%) to 14,853.75

NEW YORK, NEW YORK – MARCH 30: Traders work on the floor of the New York Stock Exchange on March 30, 2022 in New York City. US stocks opened low after the rally earlier this week. (Photo by Michael M. Santiago / Getty Images)

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter.

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