Stocks waver as investors brace for Fed tightening

US and European stocks fluctuated on Thursday after minutes from central banks showed US policymakers ready to aggressively wind back easy-money policies while their eurozone counterparts disagreed over their own way forward.

Eurozone stock markets were higher in afternoon deals but London’s FTSE 100 ticked lower. Wall Street was mixed in early trading, with the tech-heavy Nasdaq up while the Dow Jones Industrial Average and S&P 500 were lower.

Oil prices, meanwhile, pared some of the previous day’s heavy losses that had been triggered by concerns about weaker demand because of economic slowdown.

Minutes showed the Fed in March opted to raise US borrowing costs rates by a quarter percentage point, mindful of “greater near-term uncertainty associated with Russia’s invasion of Ukraine”.

But some policymakers had favoured lifting rates even higher, by half a percentage point, to rein in decades-high inflation which is threatening to derail the economic recovery.

“The stock market, as well as the Treasury market, looks as if it is struggling to figure out the future and how it will be shaped by the Fed’s hawkish-minded shift in setting monetary policy,” Briefing.com analyst Patrick O’Hare said.

But the analyst added that the stock market “intuitively knows the near future is going to be a future with lower growth”.  At their own meeting last month, European Central Bank policymakers disagreed on how to respond to runaway inflation and economic uncertainty caused by Russia’s invasion of Ukraine, minutes indicated on Thursday.

“A large number of members held the view that the current high level of inflation and its persistence called for immediate further steps towards monetary policy normalisation,” the minutes read.

The ECB’s governing council played it safe at the March meeting, agreeing to wind down monthly bond purchases at an accelerated pace in the second quarter, while keeping the end date of the stimulus scheme flexible.

An interest rate hike would follow “some time” after the end of the bond-buying scheme, it said.

But the minutes revealed that some governors wanted to go further to combat inflation, as the war in Ukraine further pushes up prices for energy, food and raw materials. The prospect of rates rising at a quicker pace over the coming months has added to a wave of uncertainty across trading floors.

Central banks across the world are under fierce pressure to tackle runaway inflation, which has soared further on a Ukraine-driven spike in commodities like gas, oil and wheat.

March was the first Fed hike since it slashed US rates to zero when the Covid-19 pandemic broke out two years ago.

While current US data points to a healthy economy, commentators warn of possible hard times ahead.

Yellen calls for crypto regulation:Treasury Secretary Janet Yellen says more government regulation is needed to police the proliferation of cryptocurrency and other digital assets and to ward off fraudulent and illicit transactions.

In practice, one result would be that users would get documentation of their crypto dealings for use in filing their taxes.

“Taxpayers should receive the same type of tax reporting on digital asset transactions that they receive for transactions in stocks and bonds, so that they have the information they need to report their income to the IRS,” Yellen said in remarks prepared for delivery on Thursday at American University.

It was to be Yellen’s first speech about cryptocurrency since President Joe Biden signed an executive order on digital assets in March.

The administration’s action follows several high-profile examples of alleged cryptocurrency laundering and fraud this year. In February, the Justice Department announced its largest-ever financial seizure - more than $3.6 billion - and the arrests of a couple accused of conspiring to launder billions of dollars in cryptocurrency stolen from the 2016 hack of a virtual currency exchange.

And in March, federal regulators accused two siblings of defrauding thousands of investors out of $124 million in unregistered securities offerings involving a digital token.

“To the extent there are gaps, we will make policy recommendations, including assessment of potential regulatory actions and legislative changes,” Yellen said in her remarks.

Biden’s executive order on government oversight of cryptocurrency urges the Federal Reserve to explore whether the central bank should create its own digital currency and directs the Treasury Department and other federal agencies to study the impact of cryptocurrency on financial stability and national security.