US stocks fall as traders digest the Fed's decision to let capital break for banks expire

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The investor fears around inflation that drove much of the market volatility appeared to be cooling before the Fed decision.

that its temporary pandemic-era rule that relaxed bank capital requirements will not be extended after March 31. That offset the positive effect of stabilizing bond yields, which then spiked on the news.

Bond yields have risen as investors grow concerned that the $1.9 trillion fiscal stimulus will cause a rise in inflation, leading the Federal Reserve to change policy and raise rates sooner than expected. Chetan Ahya - Morgan Stanley's chief economist - is concerned that a rapid labor-market recovery could push inflation levels to spike and breach the Fed's 2.5% inflation"tolerance threshold" as soon as 2022. That could bring a"disruptive shift in expectations for Fed tightening," and lead to heightened stock market volatility down the road,

 

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