Stocks Are Turbulent as Wall St. Weighs Fed’s Future Moves

Stocks rose on Thursday afternoon, after a volatile second day in which the S&P 500 swung between gains and losses.

The index rose about 0.3 percent in afternoon trading. Before that, it was up more than 1.7%, but gave up most of that gain before rising again.

The big swings this week have come as investors grapple with the impact of the Federal Reserve’s rapid interest rate hikes on the banking system. On Wednesday, Fed raises interest rates by a quarter of a percentage point, continuing the campaign to reduce inflation. This is the ninth increase in borrowing costs in a year.

But the Fed also acknowledged that it may be nearing the end of a cycle of rate hikes and turmoil in the banking system caused by monetary policy. The fall of Silicon Valley Bank earlier this month, might bring it to a halt. If banks pulled back on lending due to chaos in the financial system, making it harder for consumers to borrow and spend, that could lower inflation by slow down the economy.

Investors are still worried about the health of the banking system. Interest rate hikes over the past year have reduced the value of Silicon Valley Bank’s portfolio, which began to run out of deposits because the bank’s customers feared it might fail. When it collapsed, that raised concerns that other banks might also succumb, especially smaller lenders with less diversified deposit bases.

The wobble of bank balance sheets is one of the reasons many investors are betting that the Fed will stop raising rates and possibly even start cutting rates later this year. That’s despite claims to the contrary by policymakers, who say the fight against persistently high inflation is far from over.

“So far, the market is not confident in the Fed’s ability to independently handle inflation and financial stability,” analysts at ING wrote in a note to clients on Thursday. . “This is unlikely to change any time soon.”

While concerns about small banks have certainly eased somewhat in recent days, Thursday’s trading suggests investors remain uneasy: PacWest Bank, Zions Bancorp and First Republic Bank all lower.

On Thursday, central banks in the UK, Norway and Switzerland also raised interest rates. The Bank of EnglandThe quarter-point gain was the 11th in a row, and policymakers say the country’s banking system can withstand a period of higher interest rates.

Shares in London slid following the decision, with the FTSE 100 down about half a percent.


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