Stocks are closing higher on Wall Street at the start of a busy week where central banks are likely to unload the year’s final barrage of interest rate hikes
. The S&P 500 rallied 1.4% Monday. On Wednesday, markets expect the Federal Reserve to announce a more modest increase to rates than it has been pushing through recently. Other central banks around the world are also expected to raise rates by half a percentage this week, including Europe’s. Higher rates slow the economy and risk causing a recession if they go too high, all while dragging down prices of investments.
Higher rates slow the economy by design and risk causing a recession if they go too high, all while dragging down prices of investments. One upside for investors is that the Fed has hinted it will dial down the size of its rate hikes, leading to expectations for a more modest increase of 0.50 percentage points Wednesday.
Any dial down in the size of rate hikes would mean less added pain for markets and the economy. Such hopes have helped stocks and bonds rally since mid-October, as investors have taken data reports to mean the worst of inflation has finally passed and would allow the Fed to ease up. Some investors also continue to make moves in anticipation of the Fed cutting interest rates during the second half of 2023. Rate cuts generally act like steroids for stocks and other investments, but the Fed has been insisting it plans to hold rates at a high level for some time to ensure the battle against inflation is won.
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