TL;DR
- Apart from raising interest rates, the US Federal Reserve will be reducing the size of its balance sheet from June to curb inflation.
- This means that the Fed will be reducing its purchases of assets, which will lead to less money being circulated in the economy.
- The last time the Fed reduced its balance sheet in 2017, the S&P500 dipped by 10% in the span of two weeks.
- The US market has corrected by more than 10% in anticipation of the Fed tightening, which suggests that some of these concerns have been factored into the share price. However, it is clear that the days of ample liquidity are over!
What happened?
Homeowners beware! The US Federal Reserve (Fed) has just announced a half a percentage point (0.5%) increase in its benchmark policy rate.
This follows an earlier increase in April, and will likely not be the last as inflationary pressures have become a major concern for central banks around the world....
