The Federal Reserve may be pulling the plug on policies that kept the stock market way up.
The Fed is making moves that could change the dynamic on Wall Street. First, officials no longer referring to inflation as “transitory”. Now, they are speeding up their tapering process on U.S. treasuries and mortgages. Officials at the Federal Reserve hope to have finished that process by the end of March. One question many are asking: How much are they going to raise interest rates this year?
“A couple of things can happen. One, they can overshoot. They can start raising interest rates and actually throw us into a slowdown,” KTRH moneyman Pat Shinn, a certified financial planner with Heritage Asset Advisors, said. “Or inflation can continue to be a problem.”
Shinn notes how the Fed is removing the COVID accommodations from 2020. He says that's the right move given that GDP reached an all-time high.
“Should we get a mixed message from the Fed, or should inflation continue to be a problem and longer-term interest rates spike, then of course we could see some downside volatility in the market,” Shinn explained.
Even with those risks, He still feels good about the economy overall. Wall Street had a record-breaking year in 2021. The S&P 500 rose more than 25%.