Investors are bracing for the Federal Reserve to combat today’s red-hot inflation by pulling back on, or tightening, the easy-money policies that have supported markets and the economy throughout the pandemic. At the close of regular trading Friday, the S&P was down 8.3% from a record high just reached on Jan. 3, while the Nasdaq had fallen 14% from its November peak, putting it firmly in correction territory. “It’s pretty crazy. It kind of feels like we’re back in 2020 mode,” said Ed Moya, a senior market analyst at OANDA. “The market was basically just pricing in a gradual tightening, but inflation is stronger than we had anticipated. So the expectations have dramatically shifted in three weeks. The Fed will be a lot more aggressive in tightening.” “Profit forecasts for corporate America were too optimistic so people are taking off a lot of risk, and that’s hit tech pretty hard,” he added. But will the recent sell-off deter the Fed from this tightening mode—including from its plans to raise benchmark interest rates as soon as March? Some say no. “They will let the stock market go to get inflation down with multiple rate increases,” said Tom Blew, a private investor. Have a question, comment, or story to share? You can reach Diccon at dhyatt@thebalance.com.
