Stocks Drop to a 13-Month Low as the US Curve Sharpens: Markets Wrap

  • In a New York Fed study, longer-term inflation expectations are rising.
  • Bostic of the Fed thinks there is no need to move beyond half-point increases.

Concerns over the Federal Reserve’s ability to control inflationary pressures without sending the economy into a recession caused stocks to plunge to a 13-month low in a broad selloff.

While the Treasury curve steepened and the difference between the two- and 30-year rates at its biggest since mid-March, the decline in the S&P 500 exceeded 3%. Short-dated bonds drove the gains. Investors are becoming more concerned about the Fed’s policy limitations at a time when supply-chain disruptions pose a serious threat to inflation in the context of the destabilizing conflict in Ukraine and China’s Covid lockdowns. According to data released on Monday, Americans expect prices to increase in three years compared to a month ago. This is concerning news for policymakers aiming to stabilize longer-term expectations.

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