US stock futures fell Wednesday morning as investors eyed more Western sanctions on Russia and digested hawkish comments from key monetary policymakers. These indicated that more Federal Reserve members were open to aggressively raising interest rates and reducing demand and persistently high levels of inflation.
Contracts on the S&P 500 fell, contributing to losses after the blue-chip index ended Tuesday’s session down 1.3%. Contracts on the Dow and Nasdaq also extended the declines. In the bond market, the benchmark 10-year government bond yield rose to over 2.6%, marking its highest level since May 2019.
Developments on Russia’s war in Ukraine and the West’s response remained in focus on Wednesday as the US, the European Union and the Group of Seven prepared another round of sanctions against the Kremlin. The US is expected to impose fines on other Russian government officials and family members, as well as Russian companies and financial institutions.
Meanwhile, hawkish comments from Federal Reserve officials pushed US stocks off their recent rally and sent Treasury yields higher.
Federal Reserve Governor Lael Brainard said on Tuesday that the Federal Open Market Committee (FOMC) “stands ready to take stronger action” if already elevated indicators of inflation rates and expectations warrant such action.
In a webcast, Brainard suggested that this could include aggressive rate hikes and a much faster shrinking of the Federal Reserve’s balance sheet – which has grown to nearly $9 trillion so far – than in previous periods.
“Given the significantly stronger and faster recovery than the previous cycle, I expect the balance sheet to shrink significantly faster than the previous recovery, with significantly larger caps and a much shorter deadline for phasing in the 2017-17 caps in comparison. 19,” Brainard said. She indicated that the process of reducing the Fed’s balance sheet holdings or beginning quantitative tightening could begin as early as the next Fed meeting in May.
The story goes on
Other Fed members also indicated that they are targeting further monetary tightening in the near future. San Francisco Fed Chair Mary Daly told the Financial Times on Tuesday that the case for a 50 basis point rate hike — or a hike twice the central bank’s typical per-meeting hike — “has grown” .
“The fact is, the Fed has made it very clear … it is of paramount importance that they track inflation and do whatever they can to contain the rise in inflation,” Quincy Krosby, chief equity strategist at LPL Financial, told Yahoo Finance Live . “They will, and I think the market is getting a sense that this is going to be a choppy road.”
“The Fed may go on until they break something … but it’s clear that’s their mission and they’re going to push it full steam ahead — more than 2017, more than 2018,” she added, referring to At the same time, the Federal Reserve underwent quantitative tightening a few years ago.
With US inflation rates still at around 40-year highs, forcing the Fed to aggressively tighten financial conditions, some on Wall Street have revised downwards their expectations for US and global growth. Economists at Deutsche Bank said on Tuesday they expected the US to slide into a recession by the end of next year as the Fed quickly hikes rates to counter high prices.
“We now expect the US economy to be in an outright recession by the end of next year, and that [Euro area] into a growth recession in 2024 with slightly rising unemployment,” said Deutsche Bank economists David Folkerts-Landau and Peter Hooper.
Still, the economists noted that their call for a recession next year is “far from consensus at this point” — and indeed many on Wall Street still see a slowdown, but not necessarily a streak of negative growth domestically for the foreseeable future .
“We don’t think the Fed is going to push the economy into a recession,” Veronica Willis, investment strategy analyst at the Wells Fargo Investment Institute, told Yahoo Finance Live on Tuesday. “I don’t think most people expect that. But we expect some kind of slowdown in economic growth from what we previously expected, but still about average economic growth here in the US.”
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7:16 am ET: Stock futures fall
Here’s where the markets traded on Wednesday morning:
S&P 500 Futures (ES=F): -38 points (-0.84%) to 4,482.25
Dow futures (YM=F): -214 points (-0.62%) to 34,336.00
Nasdaq Futures (NQ=F): -203 points (-1.37%) to 14,625.00
raw (CL=F): +$1.42 (+1.39%) to $103.38 a barrel
Gold (GC=F): +$4.70 (-0.24%) to $1,922.80 per ounce
10-year government bonds (^TNX): +8.3 basis points for a return of 2.637%
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6:10 p.m. ET Tuesday: Stock futures are moving higher
Here are the markets trading Tuesday night as the night session began:
S&P 500 Futures (ES=F): +5.25 points (+0.12%) to 4,525.50
Dow futures (YM=F): +34 points (+0.1%) to 34,584.00
Nasdaq futures (NQ=F): +25.75 points (+0.17%) to 14,853.75
NEW YORK, NEW YORK – MARCH 30: Traders work on the floor of the New York Stock Exchange on March 30, 2022 in New York City. US stocks opened low after rallying earlier in the week. (Photo by Michael M. Santiago/Getty Images)
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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter.
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