1) Margin Compression as higher rates, and higher labour and material costs start to bite affecting profit making companies with international footprint (local companies do as well but they already suffered a drag)
2) PE Compression - meaning valuation would slide as markets punish companies with high PE once regarded as ok given the accommodation market gave. Hence companies with higher than usual PE would likely see a bigger retracement than the average stock.
Federal Reserve signals March for first rate hike Matthew CranstonUnited States correspondent
Updated Jan 27, 2022 – 7.36am,first published at 6.04am
Washington| The US Federal Reserve has signalled it will begin lifting interest rates in March given the remarkable recovery in jobs, which chairman Jerome Powell said would not be held back by tighter monetary policy.
The central bank boss also said the Fed was not making crucial monetary policy decisions based on the recent fluctuations in US sharemarkets, which have recorded corrections in major indices.
Chairman Powell’s comments and the Fed’s statements pushed the yield on the 2-year bond up 10 basis points, while the 10-year bond up 3.5 basis points to 1.83 per cent.
Fed chairman Jerome Powell. Bloomberg
Mr Powell told the post-meeting press conference that the “remarkable” jobs recovery allowed the central bank to lift rates as soon as March with a tightening in its purchase of securities thereafter.
“I would say that the committee is of a mind to raise the Federal Funds rate at the March meeting,” Mr Powell said.
“I think there’s quite a bit of room to raise interest rates without threatening the labor market,” he said.
“This is by so many measures, an historically tight labour markets. Record levels of job openings, wages are moving up at the highest pace they have in decades.”
He said inflation was taking away some of the benefits of higher wages and that inflation needed to be reduced back down to 2 per cent.
In the Fed’s official statement it said: “With inflation well above 2 per cent and a strong labour market, the committee expects it will soon be appropriate to raise the target range for the federal funds rate.”
The volatile US sharemarket is not entering into the Fed’s rate decision-making process yet.
“I don’t want to comment on today’s financial conditions broadly, but we’re not looking at any one market. Financial conditions matter to the extent that they have implications for achieving the dual mandate [employment and prices].
“We have our eyes on the risks particularly around the world.”
The main US indices fell following Mr Powell’s comments. The S&P 500 was down 0.9 per cent.
Beyond increasing interest rates, the Fed also gave its strongest signal yet that it would reduce the size or quantity of its securities purchases.
Reducing securities purchases has the effect of increasing rates on business borrowing costs.
“[The Fed] agreed that it is appropriate at this time to provide information regarding its planned approach for significantly reducing the size of the Federal Reserve’s balance sheet.”
“The Committee expects that reducing the size of the Federal Reserve’s balance sheet will commence after the process of increasing the target range for the federal funds rate has begun.”
“The Committee intends to reduce the Federal Reserve’s securities holdings over time in a predictable manner primarily by adjusting the amounts reinvested.”
Mr Powell said the tighter monetary policy “its going to involve lifting off” on interest rates and “running down assets.”
