The Fed’s decision Wednesday this week to keep interest rates unchanged despite persistent inflation fueled by oil prices above $100 a barrel was a headache for more than one Wall Street strategist.
“In our opinion, the decision was confusing,” Ed Yardeni of Yardeni Research wrote last week.
“It reminds us of someone standing in a room with a fire alarm blaring and smoke billowing under the door, but insisting on more evidence before calling the fire department,” he noted, noting that the U.S. economy grew at an annualized rate of 3.4% in the third quarter.
Others wonder whether the Fed’s proposal — that the central bank would step in to support financial markets by lowering interest rates or providing liquidity amid falling asset prices — could play a role.
Learn more: How Employment, Inflation, and the Fed Are All Related
“The Fed is coming back,” Darius Dale, founder of 42 Macro, said Thursday on Yahoo Finance. Dale expects that in the future, policy will include greater coordination between the Federal Reserve and Treasury to influence the bond market, the government’s means of issuing debt.
That coordination could include officials stepping in to buy back government bonds using Fed-backed liquidity, giving policymakers additional firepower to calm jitters in bond markets and provide a liquidity boost next year.
Learn more: How Surging Treasury Yields Could Affect Your Finances
This outlook helps explain why investors have continued to move between stock sectors rather than suffer a sell-off, despite concerns about inflation, interest rates and AI jitters.
“It’s a market that continues to turn around instead of going down,” Dale said. “The market could be looking at – with its eyes on the price – a liquidity bailout in 2027.”
Indeed, most of the massive selling in recent sessions has taken place in the technology sector. Concerns about AI funding and the impact of artificial intelligence on companies such as Google Search Software (GOOG, GOOGL) have shaken some pockets of the AI business. Quarterly releases from Intel (INTC) and Amazon (AMZN) have put pressure on the AI business.
Meanwhile, the Healthcare (XLV), Financial Services (XLF), and Real Estate (XLRE) sectors posted gains last week. Over the past month, every other sector except Technology (XLK) and Communication Services (XLC) has rebounded, according to AlphaSpace data from Yahoo Finance.
“Under the hood, the fundamentals of this AI wave remain very strong,” Stephanie Aliaga, global markets strategist at JPMorgan Global Asset Management, told Yahoo Finance.
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