Wednesday 12 January 2022

Powell: “We’ll be normalizing policy”

Markets were mixed on Tuesday.

The S&P 500 rose 0.9 percent and the STOXX Europe 600 rose 0.8 percent. However, the Nikkei 225 fell 0.9 percent.

US investors shrugged off Federal Reserve Chairman Jerome Powell's declaration on Tuesday at his confirmation hearing that tighter monetary policy is likely this year.

“As we move through this year … if things develop as expected, we’ll be normalizing policy, meaning we’re going to end our asset purchases in March, meaning we’ll be raising rates over the course of the year,” he said.

Jeff Mills, chief investment officer at Bryn Mawr Trust Wealth Management, said that the gains in stocks on Tuesday is “just a reprieve from some pretty extreme selling we’ve had over the past number of weeks, really since the beginning of the year”.

Still, despite the risks from tighter monetary policy and rising COVID-19 infections, analysts do not see much downside for stocks.

Luca Paolini, chief strategist at Pictet Asset Management, said that “the economic recovery remains resilient nevertheless, which means stocks don’t appear particularly vulnerable to a correction”.

“There is likely to be a US stock market correction in the first half of 2022, but I expect a relatively swift recovery,” said Kristina Hooper, global market strategist at Invesco.

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