It current slideAlthough the stock market might be alarming to some investors, it is unlikely that this will cause Federal Reserve officials to abandon their policy.

Wall Street actually sees a Fed that could even be tougher as it fights against inflation amid market turmoil.

Goldman Sachs as well Bank of America in recent days have stated that they are seeing increasing chances of an even more hawkish central bankThis means that there is a greater chance for interest rate increases and other measures to reverse some of the most successful monetary policies in American history.

This sentiment is growing and is driving investors to invest. reprice a stock marketThis had previously reached historic heights, but is now heading in the opposite direction.

“The S&P is down 10%. This is not sufficient for the Fed’s to continue with its weak backbone. Peter Boockvar is chief investment officer for the Bleakley Group. He stated that they must show credibility regarding inflation. They would look bad if they kowtowed to the market and did not do anything to address inflation.

The Fed took a number of actions over the last two months. a sharp pivot on inflationThis is a record for the year, at almost 40 years.

Officials at the central bank spent much of 2021 declaring rapid price rises “transitory”, and promising to maintain short-term borrowing rates near zero until full employment. With inflation being more intense and durable than Fed forecasts have policymakers stated they are not concerned. will start hiking interest rates in March– and they will tighten their policy elsewhere.

The market could have counted on the Fed’s intervention with previous corrections to ease the pain, but a Fed dedicated to fighting inflation would be unlikely to intervene and stop the bleeding.

That is how monetary policy gets circular. Boockvar stated that asset prices are goosed when the pedal is to the metal and fall when they reverse. They have inflation at 7% and rates at zero. Therefore, they are forced to respond. “They are not ready to give up on the market just yet.”

The Federal Open Market Committee (which sets interest rates) meets Tuesday and Wednesday.

Recent rate increases culminated with December 2018 and policymakers changed their minds. The market suffered its worst Christmas Eve in years because of fears of an economic slowdown due to a Fed that was tightening. multiple rate cutsTo calm nervous investors

Apart from the inflation difference, there are many differences between this market washout (and now)

DataTrek Research examined December 2018, and January 2022, finding some important differences.

• A 14.8% decline then in the S&P 500 compared to 8.3% now, as of Friday’s close.
• An increase in Dow Jones industrials’ volatility from 14.7% at the time to 6.9% today.
• CBOE Volatility Index peaks at 36.1, then drops to 28.1 now.
• Spreads on investment-grade bonds starting at 159 Basis Points (1.59 Percentage points) and ending at 100 Now
• High yield spreads at 533 basis points, compared to 310 basispoints now.

Nick Colas, DataTrek’s co-founder and CEO wrote that “By any measure the Fed assesses capital market stress…we are nowhere near the same level as in 2018, when the central bank reconsidered monetary policy position.”

He said, “In a different way, until there is a further sale of risk assets the Fed won’t be convinced that increasing interest rates or reducing its balance sheet by 2022 will cause a recession more than a soft landing.”

However, Monday’s market activity added to the chaos.

The major averages fell more than 2% at midday. rate-sensitive tech stocks on the NasdaqThe worst part of the situation is down by more than 4 percent.

Art Cashin is a veteran market analyst who said that the Fed should take into account the selling in recent weeks and reduce its tightening, especially if it continues to be chaotic.

“The Fed is very anxious about these things. That might cause them to slow their steps,” Cashin, UBS’ director of floor operations, stated on CNBC’s “This Could Give You a Reason To Slow Your Step a Little Bit.”Squawk on the Street.” They don’t seem to want to make too much of it. Believe me. If things get worse and we don’t top here, they’ll have our backs if they sell into the spring or early summer.

Bank of America economists and strategists stated in Monday’s joint note that they are not likely to see the Fed change.

According to the bank, it expected Fed Chairman Jerome PowellOn Wednesday, the Fed will announce that every meeting “is live” in regards to rate increases or tightening. Already, markets are pricing in at minimum four increases this year. Goldman Sachs indicated that the Fed could raise interest rates every month starting March 1, if inflation continues to rise.

Bank of America, Goldman Sachs and Bank of America see the Fed moving toward an end to its asset purchases over the coming month. outright rundown of the balance sheetTo start about mid-year.

Markets had expected the asset purchases to taper. to come to a complete conclusion in MarchBofA stated that there is a possibility the quantitative easing program could be stopped in January or February. This could have a significant impact on the rates.

In a note, the research team at the bank stated that “we believe this will surprise the market” and would likely signify a more hawkish turning than previously anticipated. An announcement of a taper result at this meeting would raise the chances we assign to an additional 50bp increase in March and a further 50bp rise in May.

Markets already have priced in four quarter-percentage-point increases this year and had been leaning toward a fifth before reducing those odds Monday.

In the same note, Powell stated that inflation fears “will likely continue to push the Fed towards more rate increases this year”

Boockvar stated that the current situation was the result of an ineffective “flexible average inflation targeting”. Fed policy adopted in 2020This policy prioritized inflation over jobs, a comparison that has been made to late 1970s or early 1980s during a period of central bank ease.

He stated that they cannot print jobs and therefore aren’t going to find restaurants willing to hire workers. This is why the Fed’s claim that it can influence job creation seems implausible in the short-term. These are some of the many lessons that were lost in 1970s.