An increasing number of Federal Reserve officials have recently spooked markets by warning about the economic impact of decades-high inflation and how the central bank will need to aggressively raise interest rates, as well as “rapidly” reduce its balance sheet, to combat surging prices .
Stocks fell on Wednesday, adding to losses this week, after recent comments from Federal Reserve officials added to market uncertainty: The Dow Jones Industrial Average lost 0.4%, around 150 points, while the S&P 500 dropped 1% and the Nasdaq Composite 2.2%.
A rising number of Fed officials have been publicly warning about surging inflation and how the central bank will need to respond by aggressively raising interest rates and reducing its balance sheet.
Philadelphia Fed President Patrick Harker was the latest to join the chorus on Wednesday, saying that he is “acutely concerned” about inflation, which is “running far too high.”
His comments follow those of several of his colleagues on Tuesday: Fed Governor Lael Brainard said that bringing down inflation is “of paramount importance” and the central bank will be required to enact “a series of interest rate hikes” as well as a “rapid ” Reduction of its balance sheet.
That same day, San Francisco Fed President Mary Daly similarly expressed concern about inflation, saying it “is as harmful as not having a job,” while also pledging higher rate hikes from the Fed as it looks to combat surging prices.
Markets were particularly spooked by Brainard’s comments on shrinking the balance sheet, as well as the fact that both she and Daly are policy “doves,” who usually favor low interest rates but are nonetheless now calling for a series of rate hikes.