Stocks traded lower last week on renewed fears of Covid induced restrictions due to increased cases led by the Omicron variant. The S&P 500 was down almost 2% and the technology-heavy NASDAQ Composite Index lost about 3%. The Federal Reserve also moved markets last week as Chairman Jerome Powell outlined the central banks’ plans for raising interest rates next year and winding down bond purchases which have helped to keep rates low. The policy shift was met with a positive move in stocks on Wednesday, followed by two consecutive sell-offs to finish out the week.
Treasury yields dropped moderately over the course of the week as the Federal Reserve announced policy expectations during their December meeting. The Fed determined it will taper monthly asset purchases more quickly than before, reducing from $60 billion a month to $30 billion. Fed officials also announced that they expect 3 rate hikes in 2022 and raised inflation forecasts for 2023 but kept their long-term projection for the fed funds rate at 2.5%. Fed Chairman Jerome Powell said that the Fed would attempt to keep elevated inflation from becoming more permanent and that it may take some time to return to higher workforce participation.