The main indexes on Wall Street plunged on Monday after hawkish comments from an official of the US Federal Reserve. The comments lowered hopes that the Fed would ease its aggressive monetary tightening policies.

Nasdaq plunges as Fed appears hawkish

The governor of the Federal Reserve, Christopher Waller, has opined that the markets needed to be more attentive towards the “endpoint” of an interest rate increase and not the extent of every move.

The remarks come shortly after the Consumer Price Index data showed that inflation was at 7.7%, a lower-than-expected number. The declining inflation levels raised investor confidence that the Fed would be easing the hikes on interest rates.

After the CPI data was released, the S&P 500 index reported the largest weekly gain in around five months, while Nasdaq closed the best week since March this year. More economic data will be released in the coming weeks, further highlighting the inflation levels.

The S&P 500 index and the Nasdaq composite index have dropped today amid the hawkish sentiments made by the Fed official. A similar downtrend has also been seen in the Dow Jones Industrial Average.

Stocks of tech companies have also declined but are yet to erase the notable uptrend made after the CPI data was released. On the other hand, US Treasury yields went on an uptrend. The US dollar index also shows signs of strengthening after a slightly bearish sentiment.

Analysts expect Fed to ease interest rate hikes

Most analysts expect the Fed to raise interest rates by 50 basis points in December. This will be followed by another terminal rate between 4.75% and 5% in 2023.

The aggressive action to raise interest rates severally this year has resulted in investors turning away from risk assets. The US dollar has grown strong amid these tightening policies. However, after the October inflation data was released, the US dollar plunged significantly.

The US Federal Reserve is not the only central bank raising interest rates. The central bank of Japan and the Bank of England have also been raising rates to prop up their local currencies, raising fears of a looming global recession.

The next Federal Reserve Open Market Committee (FOMC) meeting is in December. The result of this meeting will determine how financial markets will end the year. With most stocks being notably down on a year-to-date (YTD) basis, an easing of interest rate will trigger gains for stocks, and financial markets will close the year on a positive note.