Top Line

Stocks fell in early trading Tuesday as Federal Reserve officials kicked off their long-awaited policy meeting, which is expected to end Wednesday with a third consecutive 75-basis-point interest rate hike—an aggressive move. That would drive borrowing costs to the highest levels since the Great Recession in an effort to reduce stubbornly high inflation.

Key Facts

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The Dow Jones Industrial Average fell 380 points, or 1.2%, to 30,640 as of 10:30 a.m. EDT, while the S&P 500 and the tech-heavy Nasdaq dropped 1.2% and 0.9%, respectively.

Economists project Fed officials will raise interest rates by a further 75 basis points on Wednesday, surpassing previous expectations of a half-point increase after last month’s inflation print surprisingly warmed and borrowing costs between 3% and 3.25%. Pushed to the middle – the highest level since 2008.

Reflecting hopes of bigger interest rate hikes, the yield on the ten-year Treasury jumped to 3.593% on Tuesday, hitting its highest level in 11 years for the second straight day.

In a note to clients, Keith Lerner, chief market strategist at Truist Advisory Services, said he expects the Fed to continue raising interest rates longer to address inflationary challenges that have been pending for more than a year. is—”even if it necessitates more economic pain,” as officials warned this summer.

Lerner points out that fund managers surveyed by Bank of America are showing signs of extreme bearishness, piling on cash at the highest level since 2001 and limiting exposure to the stock (at record low levels) because Global economic growth expectations are close to the lowest level ever. In light of the strenuous efforts of the central bank.

important quotes

"The biggest and growing downside to the market is increasing recession risk as the Fed aggressively tightens in a slowing economy," says Lerner. "Historically, once inflation has exceeded 5%, it has generally taken a recession to bring it back." This has been happening ever since least 1970.

what to see

The Fed will announce its next interest rate hike at the conclusion of its two-day policy meeting, Wednesday at 2 p.m. EDT.

main background

The past week had the market's worst performance in months after the Labor Department reported a faster-than-expected increase in August, raising concerns that Fed officials may need to act more aggressively to tame inflation. can. The S&P is down 10% since its peak in August and has fallen nearly 20% this year. "The Fed has more work to do," Bank of America's Savita Subramaniam wrote in a recent note. "Lessons from the 1970s tell us that a premature softening could lead to a new wave of inflation - and that there may be a small price to pay for market volatility in the short term."

Stocks struggle as markets brace for another 'unusually large' Fed rate hike (Forbes)

What happens to stocks when the Fed raises rates by 100 basis points? (Forbes)

Recession watch: Stock market rally 'over' as unemployment rises and fears intensify (Forbes)