Economists polled by Bloomberg expect Fed officials next week to signal the first rate hike in more than three years in March and to begin shrinking the balance sheet shortly thereafter. Most of the 45 economists polled predict the Fed will use its Jan. 25-26 policy meeting to herald a 25-basis-point rate hike, but two expect a surprise 50-basis-point hike in response. Soaring price pressures - this will be the biggest rate hike since 2000. The survey was conducted from January 14 to 19. For the number of Fed rate hikes in 2022, the number of economists forecasting 3 and 4 times is basically equal. The Federal Open Market Committee begins its two-day meeting next Tuesday, with a policy statement due in Washington on Wednesday at 2 p.m. ET. Quarterly economic and interest rate forecasts will not be released at this meeting. Federal Reserve Chairman Jerome Powell will hold a news conference in 30 minutes.

With the Nasdaq 100 posting its biggest weekly loss since the outbreak of the virus in March 2020, investors are now facing another Federal Reserve meeting on Wednesday. Officials are expected to signal a rate hike in March and begin shrinking the balance sheet shortly thereafter. History suggests that 2022 may end better than it started. Historically, U.S. stocks have performed well during Fed rate hikes, as economic growth tends to support corporate profit growth and the stock market. In fact, according to Keith Lerner, co-chief investment officer at Truist, the stock market has returned positive 11 times out of 12 rate hike cycles since the 1950s, averaging an annualized gain of 9%. The only exception was in 1972-1974, which hit the recession of 1973-1975.

Bitcoin, the largest digital asset, extended losses on Saturday and is now down more than 50 percent from its record high set in November. Bitcoin's decline since its November highs has wiped out more than $600 billion in market value, and the overall cryptocurrency market has lost more than $1 trillion in market value. Bespoke Investment Group said that while bitcoin and the overall market saw much larger percentage declines, they were the second-biggest declines ever in dollar terms. Bitcoin fell as low as $34,042, or 7.2%.

U.S. Treasury Secretary Janet Yellen painted an optimistic picture of the future of the U.S. economy, with inflation expected to subside and the potential for stronger long-term growth. On Friday, Yellen acknowledged that the rise in prices was indeed a "reasonable policy concern", but also said, "It should also be noted that professional forecasters expect inflation to subside significantly next year." She spoke by video at the World Economic Forum's online "Davos Agenda" dialogue. She also called the U.S. labor market "extremely strong" and called the projected 3.3 percent growth rate in 2022 a "remarkable economic and policy achievement." Yellen's speech contrasted with the general public sentiment that the U.S. economy is on the wrong track and worries that high inflation will continue to erode household purchasing power. While economic growth and employment have rebounded strongly from the rout in early 2020 when the COVID-19 pandemic hit, inflation has risen to a near 40-year peak.

While the Fed is expected to start raising interest rates in March, European Central Bank President Christine Lagarde has stood by her stance that Europe cannot withdraw its anti-epidemic stimulus at the pace of the Fed. Lagarde said the pace of economic recovery in Europe and the United States was different. She has repeatedly said that upward pressure on euro zone consumer prices from supply disruptions and energy costs will gradually ease. She told a virtual panel discussion at the World Economic Forum on Friday that the ECB would act as soon as inflation conditions were met, "but at the moment it's not happy with them." The ECB now expects less price growth in 2023 and 2024 than 2% target. But the bank is under pressure to act after inflation hit a record 5% last month. While officials agreed to wind down the emergency bond-buying program, they said a rate hike this year was extremely unlikely. Financial markets are not so sure, betting that the price surge will prove more durable. They are currently pricing in a rate hike as early as September.

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