Stocks hit ahead of Fed minutes

Stock markets are taking a bit of a beating on Wednesday as investors start to fret again about the pace of monetary tightening.

Fed mulling point hikes

Cracks are starting to appear as it becomes clear that the central bank has little choice but to tackle inflation head-on, no matter the cost, after arriving late to the party with its first hike last month. It took a long time for the central bank to acknowledge the problem and much longer again before it eventually started raising rates and now it looks set to pay the price for dragging its feet.

There has been a remarkable amount of resilience in financial markets of late despite looming economic threats, something that is curious, to say the least, and possibly a side effect of the buy the dip mentality that has been rewarded over the years. The Fed put had a great run but all good things must come to an end.

Even the more dovish policymakers are coming round to the idea that more needs to be done and 25 basis points at each meeting may just not cut it. Markets are pricing in a far more aggressive tightening including multiple super-sized rate hikes at the upcoming meetings. The balance sheet will also be reduced at a more rapid pace than in the past after doubling since the start of the pandemic.

Given the renewed concern about the economy and interest rates, the Fed minutes later will naturally be poured over for signs of consensus-building around super-sized rate hikes. Could they be even more aggressive than 50 basis points? And how aggressive will they be on the balance sheet? I expect any tiny hawkish hint will trigger quite the response. Once more, it’s tech that’s taking the brunt of the pain in the face of much higher rates.

Bitcoin loses breakout momentum

Bitcoin hasn’t been so fortunate. The swift drop in risk appetite has seen it tumble more than 4% and effectively lose all the momentum it could have gained after breaking major resistance last week. It’s broken back below USD 45,500 and could come under further pressure in the near term. The longer-term continues to look favourable and there’s clearly plenty of support for the cryptocurrency but the environment just doesn’t help.

For a look at all of today’s economic events, check out our economic calendar:

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Craig Erlam

Craig Erlam

Former Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.