Fed Begins Monthly Reduction of Balance Sheet

• US stocks fell slightly on Wednesday as investors braced for the start of the Fed’s balance sheet reduction plans.
• The Fed plans to reduce its $9 trillion balance sheet by $45 billion this month, and will increase the roll-off over time.
• JPMorgan’s Jamie Dimon warned that an economic hurricane is approaching and that it requires preparation.

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. 

Here’s where US indexes stood at the 4:00 p.m. ET close on Wednesday:

Shanghai reopened on Wednesday after a two-month long lockdown due to the spread of COVID-19. The reopening of China could help improve supply chain logjams and help prices reverse course and trend lower.

US Treasury Secretary Janet Yellen admitted that  she “was wrong” about how big of a risk inflation was in the aftermath of the COVID-19 pandemic. Now Yellen’s top priority, along with President Joe Biden’s and Fed Chairman Jerome Powell’s, is to tame inflationary pressures.

Salesforce shares spiked more than 10% on Wednesday after the company reported better-than-feared first-quarter earnings. The results could lead to a broader tech rally, Wedbush said, as it may calm fears about a broad slowdown in enterprise cloud spending. 

Oil prices initially fell on reports OPEC could suspend Russia from production agreements, but later rebounded. West Texas Intermediate crude oil rose as much as much as 1.81% to $116.75 per barrel. Brent crude, oil’s international benchmark, rose as much as 1.88% to $117.77.

Bitcoin fell 4.59% to $30,149. Ether prices dropped 5.6% to $1,820.

Gold rose as much as 0.10% to $1,850.30 per ounce. The yield on the 10-year Treasury rose 8 basis points to 2.93%.