(Bloomberg) -- Financial markets finally took the Federal Reserve's hint that the central bank is going move aggressively to tamp down inflation, even if it risks tipping the economy into recession.
Tech stocks sank the most in a month and Treasuries fell across the curve as the minutes confirmed officials are prepared to raise rates 50 basis points and begin the process of reducing the Fed's balance sheet at its next meeting. While stocks pared the worst of the losses, the S&P 500 remained down almost 2% since a spate of Fed officials, most notably Lael Brainard, suggested faster tightening was coming -- a view confirmed by Wednesday's minutes.
Here's what Wall Street traders and strategists had to say about the latest developments:
Sarah Hunt, portfolio manager at Alpine Woods Capital Investors:
“The market has not been taking the threat of the Fed seriously until recently even with elevated inflation.”
“Even though the Fed has been saying it will raise rates, the market -- after the big drop in January/February -- had been ignoring that reality and hoping that the conflict might allow the Fed to justify holding off, but that idea is now wearing off.”
Matt Maley, chief market strategist at Miller Tabak + Co.
“Investors have finally come to the realization that the Fed is going to be aggressive even if it causes some pain in the markets. Their No. 1 priority right now is inflation.”
Jay Hatfield, chief investment officer at Infrastructure Capital Advisors:
“It's a hawkish outlook on quantitative tightening, which seems a little strange because (Fed Chair Jerome) Powell did not give any hints of this in his press conference, so I think it's a surprise. It's definitely disappointing. I think they might have tasked Brainard with preambling. I do think that Fed policy is highly erratic and imprudent to go from $120 billion of purchases to $95 billion of repurchases and I think the market is reflecting that. It raises the risk of recession.”
Sean Bandazian, senior investment analyst for Cornerstone Wealth:
“Another very hawkish readout indicates the Fed is willing to walk the walk. Aside from the pace of the balance sheet roll-off, most telling from the minutes was the preparedness to hike 50 basis points last month. If not for the crisis in Eastern Europe we could have been staring down at least three meetings in a row with 50 basis point hikes, which the market was not expecting.”
Jeffrey Roach, chief economist at LPL Financial:
“The minutes reveal the Committee's interest in starting quantitative tightening – that is, allowing the balance sheet to contract and doing QT much faster than the previous round of QT in 2017-1. Federal Reserve's bond holdings could decline by as much as $95 billion a month but this would not happen for a few more months as this plan gets phased in. Front-loading rate hikes plus an aggressive balance sheet runoff could give leeway for the FOMC to pause in November and/or December. In the coming months, we think the Fed could rotate from an inflation focus to a growth focus if employment or consumer spending slows.”
Tom Martin, senior portfolio manager at Globalt Investments:
“Since the meeting, there have been so many Fed speakers out with so many other things to say that there is more information in what's been said than what is actually in the minutes.”
Jerry Paul, portfolio manager at Icon Advisers Inc.:
The market weakness “is just a further reflection that those of us who have thought the Fed was behind are right. This stuff should have started a long time ago -- they should have quit buying mortgages a year ago,” he said by phone. “The discount rate for earnings is going higher and that's got to have an impact on stock values. And to the extent equities start to price in much of a recession risk, that would represent an earnings risk.”
“It will be a fits-and-starts type of process, kind of like what we're seeing today, where initially it reacted one way and now doing the other. And managing money in that environment is very difficult if you're trying to time it all. So, yeah, it's going to be a tough environment.”
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