What Fear of a 50-Basis Point Fed Rate Hike Says About Future Stock Market Volatility

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Fears the Federal Reserve might hike interest rates by 50 basis points in March increased stock volatility. It’s unlikely, but Fed hawkishness may yet surprise.

which defied pessimistic expectations about omicron's impact on hiring, though the Fed has maintained throughout Covid waves that each one has proven to have less of an impact on the economy.Recent Fed history does suggest that if the Fed moves by 50 basis points it is not likely to be its first move in a hiking cycle. A May 2000 increase of 50 basis points came after five bumps of 25 basis points from June 1999 to March 2000, and was the last rate increase of the cycle.

This idea was once an established principal of the central bank, which past Fed vice chairman Alan Blinder called"the stitch in time" philosophy. But the fact that several top Fed officials seemed to downplay a 50-basis point hike last week isn't necessarily a strong signal, let alone commentary Ryding would define as"walking back," at all.

"That won't be case this time," Ryding said, which the Fed has made clear is its position though details remain scant.The market's shifting view on a 50 basis point hike in March may continue to move around, but being too bearish in the short-term doesn't mean the market is not underestimating the degree of monetary restraint that will eventually be needed to rein in inflation.

"To come out of the blocks with a 50-basis point rate hike is not in this Fed's DNA," he said. And until there is more recognition of the upside risk to inflation as becoming reality in the Fed forecast, policy won't get tighter than expected."Eventually, I do think the Fed will have to do more than the market expects, but not in the near term," he said.

 

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