Wall Street’s main indexes struggled for direction Tuesday morning, hovering around their flatline as investors await testimony from Federal Reserve chair Jerome Powell.
Equity markets clawed back from record intraday lows late Monday after extended losses but failed to extend the comeback at Tuesday's open. The Nasdaq eked out an afternoon rally in the previous session to close in the green, while the S&P 500 and Dow extended their losing streak — even after modest rebounds.
Powell is scheduled for his re-nominationconfirmation hearingbefore the Senate Banking Committee at 10:00 a.m. ET, where he is expected to get questions for about two hours on topics frompossible rate hikestothe Fed's ongoing trading scandal. The hearing will be streamed live on Yahoo Finance.
Worries over sooner-than-expected interest rate hikes have tempered investors’ optimism heading into the new year, placing equity markets in arisk-off moodso far in 2022. Meanwhile, Treasury yields have climbed, with the benchmark 10-year yield topping 1.8% to reach its highest level since January 2020.
“We’re seeing across the board a re-rating of what the Federal Reserve will do,” Steven Wieting, global chief investment strategist at Citi Private Bank told Yahoo Finance Live.
“The likelihood is very clear that the Fed will succeed in sinking inflation,” Wieting said. “That was going to happen one way or the other and we are just trying to gather how actively the Fed will be doing that.”
Goldman Sachs, Evercore ISI, and Deutsche Bank are now among Fed watchersrepricing the Federal Reserve’s pace on rate hikes. The firms recently predicted short-term interest rates will be 100 basis points higher by the end of 2022 than where they are now.
“We revise our Fed outlook again given plummeting unemployment, strong wages, and anticipation of another hot inflation print,” said Evercore ISI’s Krishna Guha in a note.
In an interview with CNBC on Monday, JPMorgan Chief Executive Officer Jamie Dimon said he hoped for a “soft landing,” by the central bank as it gets ready to begin raising its benchmark federal funds rate in March.
“It’s going to be a little bit like threading a needle,” said Dimon, though adding that it was possible inflation is worse than the Fed believes and rates could be increased more than currently anticipated.
“I’d personally be surprised if it’s just four increases,” Dimon said. “Four increases of 25 basis points is a very, very little amount, and very easy for the economy to absorb.”
The central bank’s monetary policy will remain in focus this week, with the Bureau of Labor Statistics' (BLS) latest Consumer Price Index (CPI) in the spotlight as investors continue to gauge inflationary pressures and the Fed’s potential response.
Another red-hot read on the latest number is expected, with economists forecasting a print of 7.1% in December based on Bloomberg consensus data, up even more fromNovember's 6.8% year-over-year clip.
Bank earnings are also underway, with BlackRock (BLK), Citigroup (C), JPMorgan Chase (JPM), and Wells Fargo (WFC) set to report fourth-quarter results before market open on Friday.