US stock futures whipsaw after a hawkish Fed prepares for a March rate hike to battle inflation

• US stock futures whiplashed Thursday after the Fed set the stage for an interest-rate hike in March.
• A hawkish Fed and Chairman Jerome Powell's greater concern over inflation had sent equity investors into a tailspin.
• The market "has sensed that the ground is shifting under our feet," an investment analyst said.

US stock futures were trading about flat Thursday, in bumpy trading after the Federal Reserve signaled it would start hiking interest rates at its March meeting.

Global stocks initially slid in the early going, then recovered some of those losses as investors absorbed Fed Chair Jerome Powell's comments. Some fear the Fed's tighter policy will lower liquidity in financial markets, which had driven exuberant valuations.

Futures on the Dow Jones were a touch lower, down 30 points, while those on the S&P 500 and the Nasdaq were about flat as of 6:20 a.m. ET.

In its policy update Wednesday, the US central bank said it would "soon" be appropriate to raise interest rates and reiterated plans to end bond-buying in March. This, analysts said, is a sign the economy is ready for a change.

"Change can be scary. And this market has sensed that the ground is shifting under our feet," Callie Cox, an investment analyst at eToro, said. "However, the market has braced for big and fast rate hikes, and it looks like the Fed's approach will be more flexible instead of dramatic."

After the Fed's statement, yields were little changed and the Nasdaq rose around 1% in Wednesday's session. But during Jerome Powell's hawkish press conference, the narrative around greater concerns of inflation and tighter rate policy undid gains immediately. This unfolded in a major negative turnaround in equities and rates.

The yield on the 10-year Treasury note was last unchanged from Wednesday's 1.84%, close to their highest in two years.

"The Fed's announcement was mostly expected, however it still seemed to shock the market and cause its early rally to wither," Anthony Denier, CEO of trading platform Webull, said. "If this is the reaction to expected news, it doesn't look good if the Fed were to change its outlook to something more negative, or increase the number of rate hikes."

During the conference, Powell warned inflation remains above the Fed's goal of 2% and that there's a risk "high inflation is more persistent than expected."

"There was a tone in Powell's voice that was new, one of greater concern on inflation and he made a point that this time was different from prior periods of tightening," said Chris Weston, Pepperstone's head of research.

Powell didn't make any timing commitments about the start of the balance sheet run-off, or the expected pace. But he admitted that a rate-hike at every meeting this year was not off the table.

On the earnings front, Tesla stock briefly dropped 6% in after-hours trading despite beating analyst expectations. Investors fear production of the company's electric vehicles could be constrained by continued supply chain issues.

Elsewhere in Europe, equities recovered after a sharply lower start to trading.

London's FTSE 100 rose 0.4%. The pan-European Euro Stoxx 600 fell 0.27%, and Frankfurt's DAX dipped 0.5%.

Asian equities had a bad day, plunging to their lowest in nearly 15 months. Chinese blue-chips fell to their lowest since September 30, 2020, according to Refinitiv data.

The Shanghai Composite lost 1.7% and Hong Kong's Hang Seng fell 2.4%. Tokyo's Nikkei declined 3%.

Brent crude oil briefly rose to trade near $90 a barrel for the first time since 2014, largely due to the deteriorating Russia-Ukraine crisis, before retreating somewhat.

"In addition to hopes of a return to more normal levels of mobility this year following the pandemic, growing geopolitical tensions have also supported prices lately, not least given Russia is one of the world's biggest exporters of oil," Deutsche Bank analysts said.

Brent crude futures were last about flat at $88.77 a barrel, while West Texas Intermediate futures were also broadly unchanged at $87.41 a barrel.

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