The Federal Reserve will deliver a volatile summer for markets
America's central bank has hinted that it expects to raise interest rates twice in 2023, sending send markets into a spin. There's more volatility to come.

Has Jerome Powell turned into a hawk? The chair of the US Federal Reserve, America’s central bank, has repeatedly insisted that surging inflation is “transitory” and that monetary policy must be kept ultra-loose for the foreseeable future. The annual rate of US inflation hit a 13-year high of 5% last month, while other data also shows that the US economy is red-hot. Hence a rethink: last week Powell finally acknowledged that “inflation could turn out to be higher and more persistent than we expect”.
The end of the reflation trade
Fed policymakers have signalled that they expect to raise interest rates twice in 2023, earlier than previously suggested. While that seems far off, the mere hint that the Fed is taking inflation more seriously was enough to send markets into a spin.
America’s S&P 500 stock index had its worst week since February last week, tumbling by 1.9%. The last seven months in markets have been defined by the “reflation trade”, says The Economist. Vaccine-enabled reopening has brought greater interest in beaten-down consumer, financial and commodity stocks. The optimism was underpinned by “super-loose monetary policy”: US interest rates are close to zero and the Fed is making $120bn in monthly asset purchases, financed with quantitative easing (QE) – printed money.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The suggestion that it “may eventually think about” hiking interest rates feels like a turning point to some. Stocks rallied again at the start of this week, suggesting the reaction was a bit overdone. The US economy has still not fully reopened; the “great reflation trade” could still have “further to run”.
Pick your poison: debt or inflation
Central bank promises of future interest rate rises have a credibility problem. Policy makers “face a brutal choice”, says Jeremy Warner in The Daily Telegraph, Central bankers need to raise interest rates to control inflation, but doing so risks provoking a “fiscal and economic crisis”. Governments and firms loaded up on debt to get through the pandemic. Hiking their ultra-low borrowing costs could spell ruination. Policymakers will instead be forced to “let inflation rip”. This quandary is a reminder that the “response to any crisis ends up sowing the seeds for the next one”. Signs of future trouble are already brewing, says Irwin Stelzer in The Sunday Times. The US housing market is booming, with a pace of price increases unseen since before the 2007 subprime meltdown. Powell admits as much, so why on earth is the Fed still buying $40bn a month in mortgage-backed securities, a measure designed to prop up the market in the depths of the crisis? Economist Larry Summers thinks “future financial historians will be mystified”.
Traditionally, financial markets “entered the doldrums” over summer as people went on holiday, says Randall Forsyth in Barron’s. But this year the Fed faces the delicate task of unwinding its “supereasy monetary policies”. Attempts to “taper” monetary support have brought market turmoil in the past. Investors should “prepare for a volatile summer”.
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.
Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.
He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.
Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.
-
Carers retire with an average pension of just £6,750
A growing pensions gap shows carers retire with significantly less private pension income than the national average
-
8 of the best properties for sale with award-winning gardens
The best properties for sale with award-winning gardens – from a Victorian Gothic rectory in Hampshire, to a Georgian house in Kent with gardens designed by multiple Royal Chelsea Flower Show gold medallist Roger Platts
-
AJ Bell: a fine British fintech going cheap
Opinion Don’t overlook investment platform AJ Bell, a significantly undervalued British business with an excellent financial base
-
Tariffs 'were a terrible idea but shunning the US is a big mistake'
Opinion Manufacturers and investors have pivoted away from the US, the world’s biggest economy. That’s a mistake, says Matthew Lynn
-
Investors remain calm as the Middle East war unfolds
Conflict in the Middle East has failed to shake oil or stock markets. Can the peace hold?
-
The British railway industry is in rude health – here's why investors should jump aboard
The railway industry has bounced back from the devastating impact of the pandemic and is entering a new phase of development – and profitability
-
US and China reach a ceasefire in their trade war after talks in London
The US and China's trading relationship – the most important one in the global economy – is back on track. Will the truce last?
-
Infrastructure investing: a haven of stable growth amid market turmoil
From booming construction in emerging markets to digital and green transitions, the infrastructure sector offers security, returns and long-term opportunities
-
The costly myth of “sell in May”
Opinion May 2025's strong returns for US stocks have once again shown that putting too much weight on seasonal patterns will only make investors poorer, says Max King
-
Who’s driving Tesla?
As Elon Musk steps back from government with his eyes on the stars, investors ask if he’s still behind the wheel at his electric-car maker.