FX.co ★ Fed could raise interest rate, Bank of America expert says

US stock market indexes closed on Monday in negative territory, nearly reaching their all-time highs. Market players eye the last meeting of the Federal Reserve in 2021, which will happen on Wednesday. The Fed is likely to accelerate the QE tapering by $20-30 billion, which would be a bullish factor for USD and a bearish one for stocks. However, investors do not seem to be concerned with possible monetary tightening - US indexes quickly rallied after undergoing a correction for several weeks. If the Fed cuts down QE by more than $15 billion tomorrow, indexes would decline once again.

Michael Hartnett, head of strategy at Bank of America, predicted on Friday that the Fed "could and should raise rates this week", which would shock Wall Street, as market players expect a rate hike only in April 2022. Alternatively, the regulator would hike interest rates in early 2022 by 0.5%. Hartnett noted that overheating in the labor market and soaring inflation require intervention from the Fed, and advised investors to "sell the rip" rather than "buy the dip" in stocks, comparing the slump of tech company stocks to the dot-com bubble of 2000. The Bank of America's head of strategy pointed out that 64% of the NASDAQ's gains since the beginning of 2021 was driven by only 5 stocks: Microsoft, Apple, Alphabet, Tesla and Nvidia. The end of monetary stimulus would end the flow of investments into stocks and make low-risk instruments more desirable. However, high inflation would nullify the benefits of bonds and deposits to investors due to the low yields.