The fall in the stock market is an indication of the Federal Reserve raising interest rates

The fall in the stock market is an indication of the Federal Reserve raising interest rates

The US Federal Reserve’s policy rate hike has had a negative impact on global stock markets. The index has fallen in major stock markets. Especially in the major Asian stock markets, the index fell to its lowest level in three weeks.

Fed officials met last Tuesday. After the meeting it was indicated that the policy-making interest rate would be increased rapidly. Earlier, Fed policymakers said interest rates would not be raised before 2024.

Central banks around the world, including the Federal Reserve, have adopted interest rate concessions in the event of a coronavirus crisis, which has had a positive impact on stock markets. This time around, however, the Federal Reserve indicated that policy rates could be raised twice by 2023. They argue that more people in the United States have already been vaccinated against the coronavirus and that business has begun. All in all, the economy is recovering faster than expected. However, inflation has risen, which needs to be tolerated.

The new decision triggered a drop in the Wall Street stock market index on Wednesday. And that fall also hit Asian stock markets on Thursday. At the same time, the European stock market has also seen a decline.

Last Wednesday, Wall Street’s main stock index S&P 500 fell 0.54 percent to 4,224 points. The Dow Jones industrial average fell 0.7 percent to 34,034 points and the Nasdaq fell 24 percent to 14,039 points.

On the other hand, the Nikkei-225 index on the Tokyo Stock Exchange of Japan fell 1.1 percent to 28,975 points on the Asian stock market yesterday. Hong Kong’s Hengsheng index fell 0.1 percent to 26,435 points. South Korea’s Kospi index fell 0.5 percent to 3,261 points. The Bombay Stock Exchange (BSE) Sensex fell by 34 points to 52,323 points. Australia’s S&P-ASX 200 index fell 0.4 points to 6,358 points. In addition, New Zealand, Singapore and Indonesia stock market indexes have also declined.

The only exception is China’s Shanghai Composite Index. It has risen by 0.2 percent to 3,526 points. The stock market in Thailand was also positive.
In Europe, the UK’s FTSE 100 index fell 58 points to 6,143 points, while France’s CAC 40 index fell 10 percent to 6,748 points. Germany’s Dax index also fell yesterday.

U.S. stocks dropped Wednesday after the Federal Reserve raised its inflation expectations and moved up the time frame on when it will next hike interest rates.

The Dow Jones Industrial Average closed down 265.66 points, or 0.8%, at 34,033.67. The blue-chip average turned sharply lower after the Fed’s statement, falling as much as 382 points. The S&P 500 dipped 0.5% to 4,223.70, dragged down by utilities and consumer staples. The broad equity benchmark dropped as much as 1% in volatile trading as all 11 sectors fell into the red at one point. The Nasdaq Composite dipped 0.2% to 14,039.68 after retreating 1.2% at its session low.

The policymaking Federal Open Market Committee indicated that rate hikes could come as soon as 2023, after signaling in March that it saw no increases until beyond that year.

“This is not what the market expected,” said James McCann, Aberdeen Standard Investments’ deputy chief economist. “The Fed is now signaling that rates will need to rise sooner and faster. … This change in stance jars a little with the Fed’s recent claims that the recent spike in inflation is temporary.”

Major equity benchmark traded off their lows of the day after Chairman Jerome Powell said at a news conference that the so-called dot-plot projections that detail members’ forecasts for future rate increases should be taken with a “big grain of salt” and that the liftoff is “well into the future.”

The central bank gave no indication as to when it will begin cutting back on its aggressive bond-buying program, which also helped bolster markets. The Fed has been purchasing $120 billion worth of bonds each month as the economy continues to recover from the coronavirus pandemic.

The Fed chief said the central bank with provide “advance notice” before announcing its move to taper asset purchases.

“You can think of this meeting that we had as the ‘talking about talking about’ meeting,” Powell said. “In coming meetings, the committee will continue to assess the economy’s progress toward our goals. As we have said, we will provide advance notice before announcing any decision to make changes to our purchases.”

The Fed also raised its headline inflation expectation to 3.4% for 2021, a full percentage point higher than the March projection, but the post-meeting statement continued to say that inflation pressures are “transitory.”

The meeting came as inflation is heating up, with producer prices rising at their fastest annual rate in nearly 11 years during May, a report on Tuesday showed.

Powell said inflation could run hotter than the Fed expected amid the economic recovery.

“As the reopening continues, shifts in demand can be large and rapid and bottlenecks, hiring difficulties and other constraints could continue to limit how quickly supply can adjust, raising the possibility that inflation could turn out to be higher and more persistent than we expect,” Powell said during the news conference.

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button