Investors Just Got a Subtle Warning From the Federal Reserve. History Says the Stock Market Will Do This Next.
The Federal Reserve may pivot to interest rate increases this year, a move that has often led to stock market corrections.
Overview
The U.S. stock market has delivered sizable returns this year despite economic uncertainty created by the Iran conflict. The S&P 500 (SNPINDEX: ^GSPC) and Nasdaq Composite (NASDAQINDEX: ^IXIC) have added 10% and 12%, respectively, year to date. The primary driver behind the stock market's upside has been surprisingly strong corporate earnings.
But investors recently got a subtle warning from the Federal Reserve. Earlier this week, Fed Governor Christopher Waller delivered a speech at the New York Association for Business Economics. "The FOMC has to be ready to tighten monetary policy to prevent a repeat of the 2021-to-2022 inflation episode," he said, referring to the Federal Open Market Committee. "I am committed to returning inflation to the FOMC's 2% goal."
Details
That may not sound like a warning, but Waller's comments underscore a hawkish shift at the Fed. A few months ago, most policymakers expected to lower interest rates this year, but the median projection now implies higher rates. And new tightening cycles have often coincided with stock market corrections.
Source
Originally published at www.fool.com.