Bonds & Stocks
Stocks fell as traders took some chips off the table ahead of the highly anticipated Federal Reserve decision that will help shape the outlook for rate cuts this year. The S&P 500 fell to around 5,130, while the Nasdaq 100 underperformed. Super Micro Computer Inc., which had surged amid the artificial intelligence frenzy, tumbled 10% on plans to offer 2 million shares of common stock. Treasuries edged up. The yen slid as the Bank of Japan refrained from signaling any future rate hikes after scrapping the world’s last negative interest rate regime.
Economy
The Federal Reserve will begin in-depth discussions about its balance sheet this week, including when and how to slow the pace at which the central bank drains excess cash from the financial system. At the heart of this debate is how much more policymakers can shrink the Fed’s $7.5 trillion portfolio of assets before worrisome cracks — similar to those seen in 2019 ahead of an acute funding squeeze — start to appear.
Since 2022, the Fed has been letting as much as $60 billion in Treasuries and as much as $35 billion in agency-backed mortgage debt mature each month and roll off its balance sheet, a process known as quantitative tightening. But the central bank can’t maintain that pace forever.
World
The Bank of Japan scrapped the world’s last negative interest rate, ending the most aggressive monetary stimulus program in modern history, while also indicating that financial conditions will stay accommodative for now.The bank’s board voted 7-2 to set a new policy rate range of between 0% and 0.1%, shifting from a -0.1% short-term interest rate, according to a statement at the conclusion of its two-day meeting Tuesday. The BOJ also scrapped its complex yield curve control program while pledging to continue buying long-term government bonds as needed, and ended purchases of exchange-traded funds.