ASX set to fall as Fed minutes rattle Wall Street

Stocks closed lower on Wall Street on Wednesday (US time) after minutes from the Federal Reserve’s last meeting raised expectations that the central bank will move faster to raise interest rates to fight inflation.

The S&P 500 fell 1.9 per cent. Drops in major technology stocks were the biggest weight on the market. The tech-heavy Nasdaq tumbled by 3.3 per cent and the Dow Jones fell by 1.1 per cent, easing back from the record high it set a day earlier. The Australian sharemarket is set for a sharp fall with futures at 7.59am AEDT pointing to a loss of 61 points, or 0.8 per cent, at the open.

Bond yields rose after the minutes from the Fed meeting came out. The yield on the 10-year Treasury note, a benchmark for setting rates on mortgages and many other kinds of loans, rose to 1.70 per cent soon after the minutes were released, from 1.68 per cent just before.

The Fed minutes showed that the central bank’s policymakers at their meeting last month expressed concerns that surging inflation was spreading into more areas of the economy and would last longer than they previously expected. The Fed officials also concluded that the US job market was nearly at levels healthy enough that the Fed’s low-interest rate policies were no longer needed.

For both those reasons, Fed Chair Jerome Powell said after the December 14-15 meeting that the central bank was accelerating the reduction of its ultra-low interest rate policies.

Wall Street appeared to read the minutes as a sign that the central bank will be perhaps more aggressive about rolling back the economic stimulus policies it put in place after the pandemic, which could mean a faster road to higher interest rates.

“We believe the Fed is likely to raise interest rates quicker and potentially shrinking their balance sheet sooner than many expect as they signal fighting inflation is more important than protecting against a drop in economic activity,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.

Roughly 65 per cent of stocks in the benchmark S&P 500 were down. Technology companies, which led gains on Monday and then pulled the broader market lower on Tuesday, were the biggest weigh on the index. Microsoft fell 3 per cent and software maker Adobe shed 6.8 per cent.

A mix of retailers and other companies that rely on consumer spending also lost ground. Tesla slid 3.9 per cent and Amazon fell 1.4 per cent.