Markets Rattled as Fear and Trembling Build Toward Fed’s Rate Decision

June 14, 2022 (EIRNS)—The Dow Jones Industrial was down 2.8% yesterday, the S&P 500 fell 3.9%, and the Nasdaq Composite took the prize, down 4.7%. But they all did better than the crypto-currencies, which sustained double-digit collapses. Bitcoin just said hello to its ‘December 2020’ self, but moving in the opposite direction.

Bloomberg was quick to identify some of the low-hanging fruit: “Speculative areas of the market inflated by years of government largesse buckled, as profitless software firms, newly public companies and blank-check entities were unceremoniously dumped.” Reuters explained the “harder and faster” regime ahead, choosing to quote Equiti Capital chief Stuart Cole: “This is happening in spite of the actions that have so far been taken by central banks ... stoking fears that they will have to go harder and faster if inflation is to be tamed, the cost of which is being increasingly seen as lower growth and potentially recession.” Reuters goes on to dump in everything they can think of, except for the garbage that central banks have been engorging for over a decade: “With inflationary trends showing no signs of abating and new mass COVID-19 testing in China sparking concerns about more crippling lockdowns and squeezed global supply chains, investors cut exposure to risky assets across the board. Credit default swap spreads blew out to multi-year highs, while cryptocurrencies including Bitcoin and ether posted double-digit losses, as news that U.S. cryptocurrency lending company Celsius Network had frozen withdrawals spooked investors.” No mention of an 800-pound gorilla either.

So, until the Fed emits its oracular wisdom on June 15, as to the next interest rate hike, there is a lot of chatter. A hike of 0.5%—not long ago considered rather huge—simply won’t do, so the Fed has to go for 0.75%. Some of the investment banks leading the chatter for 1.0%, in their recent research notes for clients, are reported to be Jefferies, Barclays, Goldman Sachs, and J.P. Morgan.

There is little doubt that a lot of overvalued paper is, and will be, thrown overboard. But there are lots of fantasies that the Fed can find a number that will stem the tide.