Following hawkish commentary last Friday from Federal Reserve chair Jerome Powell—who said that it would take “some time” to bring down inflation with ongoing interest rate hikes—experts warn that there is still a long way to go before a reversal in monetary policy, meaning more volatility for the stock market in coming months.
Despite an impressive rally since the market’s low point in mid-June, stocks are now looking to avoid a third negative week in a row as investors worry about a more prolonged period of interest rate hikes and tighter monetary policy from the Federal Reserve.
“Momentum has clearly slowed” as Powell’s “convincing reminder” the central bank still has far more work to do was evidence investors were too “complacent” about the direction of Fed policy, says Mark Hackett, Nationwide’s chief of investment research.
Powell made clear “there won’t be a Fed pivot anytime soon,” agrees Oanda senior market analyst Edward Moya, who predicts “further equity weakness” amid rising “doubts for anyone who bought stocks earlier this month.”
The central bank is now adjusting its stance to “purposefully” raising rates “higher for longer” after “expeditious” hikes earlier this year, adding to the likelihood of a recession later this year, according to a note from Nomura senior US economist Rob Dent .
“Ongoing inflation has the Fed committed to a path that leaves little room for a soft landing,” Martin Wurm, senior economist at Moody’s Analytics, similarly agrees.
Experts also widely predict investors should expect heightened volatility, with a rising risk that stocks could retest their mid-June lows again later in 2022 amid “choppy” market conditions, according to a note from RBC’s head of US strategy, Lori Calvasina.