Stocks Advance as Fed Battles Inflation and Diminished Credibility

Barry Adams
21 Sep, 2022
New York City

Stocks on Wall Street traded higher as investors await the Fed's rate-hike decision and comments on the economy and future rate path. 

The Federal Reserve is expected to lift the key lending rate by 75 basis points as inflation is running near 4-decade high. 

Benchmark indexes are likely to close higher if the Fed lifts rates as expected but the market advance could come to a screeching halt if the Fed delivers larger or smaller than expected rate hike. 

Inflation has been running ahead of the Fed's target rate of 2% for 24 months in a row and the Fed has been lagging in its response in tackling rapid price increases. 

In the last one year, the gasoline price inflation has seeped wide and deep in the broader economy, making the Fed's job tougher in lowering inflation to the Fed's preferred rate 2%.

In many ways, the Fed is not only battling rapid price rise but also fighting its diminished credibility with investors for failing to spot and tackle inflation early on.

The Fed actions are also the largest contributors in creating conditions for rapid price increases. 

Since 2008, the Federal Reserve has created and added $9 trillion of new money to the financial system.   

The S&P 500 index advanced 0.6% to 3,877.56 and the Nasdaq Composite index added 0.3% to 11,466.32. 

Energy prices traded higher after Russia mobilized 300,000 reserve troops to bolster its military presence in Ukraine raising the prospects of a prolonged war. 

Crude oil was nearly unchanged at $84 a barrel and natural gas price held near $7.90 a thermal unit.  

However, in Europe, TTF natural gas price advanced 4% to 202.50 euros a megawatt hour. 

European bourses traded flat in cautious trading ahead of the Fed's rate-hike decision after the market-close. 

The Bank of England, The Swiss National Bank and Norges Bank of Norway are also expected to announce their rate decisions on Thursday. 

The DAX index added 0.3% to 12,710.09, the CAC-40 index gained 0.5% to 6,005.31 and the FTSE 100 index increased 0.3% to 7,210.27.