Stock Market Suffers After Fed Minutes Suggest Earlier Hikes

The stock market suffered a significant downturn on Wednesday in response to the release of the Federal Reserve's minutes from December

The Federal Reserve building is set against a blue sky in Washington, U.S. on May 1, 2020. (Kevin Lamarque/Reuters File Photo)

The Federal Reserve has released minutes of its Dec. 14 to 15 meeting, causing the stock market to plummet in response to the revelation that officials are considering implementing earlier interest rate hikes than previously expected.

The document, released on Wednesday, indicates a broad consensus within the Fed that the institution must speed up the proposed rate hikes from previous expectations in order to mitigate inflation.

The document reads, “Participants generally noted that, given their individual outlooks for the economy, the labor market, and inflation, it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated.”

The meeting’s participants also expressed a will to reduce the monthly rate of asset purchases by the Treasury Department, with a goal to end net asset purchases altogether by mid-March. This reflects a greater sense of urgency than the findings of November’s meeting.

The revelations have resulted in one of Wall Street’s worst days in the past year, with the Nasdaq Composite Index falling by 3.34 percent—its most severe daily decline since Feb. 25, 2021. This is not unexpected, as stock markets are wont to react negatively to deflationary gestures by the Fed, but it is a reminder of the precarious position of policymakers in the uncharted waters of the post-COVID-19 economy.

The Federal Reserve faces a delicate task as it navigates the upcoming fiscal year, which may prove to be one of the most challenging for economists to date.

If they fail to act decisively to curtail inflation, rising consumer costs will ensue, and it could yield irreparable economic damage. However, policymakers must also use a delicate touch in addressing such concerns, as the stock market has demonstrated its aversion to interest rate hikes.

The latest minutes report is just the latest in the ongoing saga of post-pandemic monetary policy, in which economists must constantly adapt their plans in order to thread the needle and ensure financial security in a tense situation.