HO CHI MINH CITY – Wall Street fell on the expectation that the Federal Reserve would act more quickly to rein in inflation, and oil prices continued to fall after the European Union decided not to punish Russian oil.
While the Ukraine conflict continues to throw a pall over trading floors, the Federal Reserve’s monetary policy is top of the agenda this week as investors concerned about how swiftly policymakers will remove their massive pandemic-era financial assistance.
Following last month’s 0.25 percentage point rate rise, the emphasis has shifted to the Fed’s intentions for its May meeting, with expectations building that it will announce a 0.50 percentage point boost, followed by many more before the end of the year.
If you think of the Federal Reserve’s Lael Brainard as a dove, you might be alarmed by her statements on Tuesday. She said that getting inflation down from 40-year highs was “critical” and that the bank was “prepared to take even more aggressive action” if necessary.
Brainard, who is seeking confirmation as the Fed’s vice chairman by Congress, also said that bank officials were prepared to begin cutting the bank’s massive bond holdings, which have helped keep borrowing prices low.
“The market may have expected… Brainard to make more balanced statements, but instead, they were on the hawkish end of the spectrum for someone like Brainard,” SPI Asset Management’s Stephen Innes said.
“She was not too hawkish, but she also did not give anything on which the doves might clutch.”
Minutes from the Fed’s March meeting will be released later today, and they will be looked at for clues about how policymakers think about the conflict and recent data that show the world’s largest economy is still strong for now.
All three major Wall Street indexes closed in the red, with the Nasdaq down more than 2% due to the increased vulnerability of technology corporations to rising interest rates.
And the selling spread to Asia, where Hong Kong, Shanghai, and Taipei all fell after a break.
Tokyo, Sydney, Seoul, Singapore, Manila, Jakarta, and Wellington all saw their populations decline.
As air pockets become more accessible, “No one wants to go on the other side,” Innes said.
Tuesday, both of the major futures markets fell because of the European Union’s decision not to include Russian oil in a new round of sanctions. This continued the early Asian losses.
Following the lead of the U.S. and Britain, the bloc isn’t putting an embargoon on Russia’s oil, but it wants to target the country’s coal and shipping, too.
The higher dollar, which surged in response to Brainard’s remarks, adds to the downward pressure on petroleum. Because oil is priced in dollars, it is more costly for customers who pay in other currencies.
Washington, Brussels, and the G7 might put a blanket ban on new investments in Russia on Wednesday. The US Treasury says that Washington has stopped Russia from paying its debts with cash held by American institutions.
Meanwhile, the Asian Development Bank cut its growth prediction for emerging Asia for 2022, citing “growing” pricing pressures induced by Russia’s invasion of Ukraine as a reason for the cut.
