Week in Review: December 17, 2021

Markets ended the week lower as concerns about higher interest rates pressured stocks, particularly more highly valued names. That was evident in the plight of the tech-heavy NASDAQ which fell 3.0%.

As expected, following its December meeting, the Federal Reserve announced plans to conclude its tapering by March of 2022, three months earlier than previously planned.  In addition, it now expects to raise rates three times before the end of 2022. For its part, the market sees a 50% chance of the first rate hike occurring at the Fed’s March 2022 meeting and a 65% chance that it occurs by the May meeting.

Ironically, all the talk about future rate increases resulted in actual rates declining during the week. At the long end of the curve, the 10-Year and 30-Year Treasury rates fell 0.07% and 0.06%, respectively, as investors, concerned about the prospect of rising rates, sold equities and sought the relative safety of bonds.  At the short end of the curve, the 2-Year Treasury yield was effectively unchanged dropping just 0.01% over the course of the week.

While the Fed’s announcement dominated headlines, it wasn’t the only central bank to announce tightening measures.  Across the pond, the Bank of England unexpectedly raised its main benchmark rate from 0.1% to 0.25%, a move the bank described as necessary to meets its 2% inflation target. Additionally, the Bank of Norway increased its benchmark rate from 0.25% to 0.50%, its second increase in three months. Finally, the Bank of Japan, announced that it will begin tapering its bond buying program.