US stocks fell sightly on Wednesday as investors braced for the beginning of the Fed’s balance sheet reduction plans.
In a bid to tame inflation, the Fed has engaged in monetary tightening by raising interest rates several times. Now the Fed is reducing its $9 trillion balance sheet by about $45 billion per month. That number is set to increase to about $95 billion over the next three months. Whether investors are prepared for the escalation of Fed tightening remains to be seen.
JPMorgan’s Jamie Dimon says the writing is on the wall, and warned investors on Wednesday of a coming economic hurricane that requires preparation. “You better brace yourself. JPMorgan is bracing ourselves and we’re going to be very conservative with our balance sheet,” Dimon said.
But inflation could be nearing its peak, according to JPMorgan analyst Marko Kolanovic, who argued in a Wednesday note that supply chain and commodity disruptions could ease if the Russia-Ukraine conflict finds a solution in the second half of the year.