Wednesday, October 5, 2022

Markets tumble as Fed hikes interest rate, warns more to come

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HONG KONG: Markets sank Thursday, and the dollar rallied after the Federal Reserve unveiled a third straight jumbo interest rate hike, said more were in the pipeline, and warned the battle against inflation was straining the US economy.

While the three-quarter-point rise was widely expected, there was some surprise at the central bank’s forecast that borrowing costs would likely be held above four percent throughout next year.

Fed boss Jerome Powell reiterated his determination to focus on bringing down inflation — which is at a four-decade high — and accepted that the campaign would hit Americans hard.

The bank has for months tried to walk a fine line between fighting soaring prices and trying to keep the economy from contracting, but officials accept the chances of success are narrow.

“With the new rate projections, the Fed is engineering a hard landing — a soft landing is almost out of the question,” said Seema Shah, of Principal Global Investors.

Commentators are now betting on a fourth straight 75-basis-point rate hike at the next Fed meeting in November.

All three main indexes on Wall Street tumbled Wednesday as traders contemplated an era of higher-for-longer rates, which could hit companies’ bottom lines.

Asia followed suit, with Hong Kong down almost two percent — at one point hitting an 11-year low — while Tokyo, Shanghai, Seoul, Singapore, Mumbai, Taipei and Manila also down.

London, Paris and Frankfurt extended the losses as they opened sharply lower.

Investors are now preparing for similar actions from central banks elsewhere around the world, including in Britain, Switzerland, Taiwan, Indonesia and the Philippines.

Still, the Bank of Japan decided not to shift from its ultra-loose measures owing to its determination to kickstart the country’s torpid economy, a policy that has sent the yen plunging 20 percent this year, hitting a 24-year low Thursday.

European stocks slumped at the open Thursday following sharp losses in Asia and on Wall Street after the Federal Reserve signalled more hefty US interest rate hikes.

London’s benchmark FTSE 100 index shed 1.0 percent to 7,166.81 points following the Fed outlook that came after the US central bank Wednesday unveiled a third-straight jumbo rate increase to tackle sky-high inflation.

The Bank of England was Thursday set to announce its own second bumper rate rise in a row.

In the eurozone, Frankfurt’s DAX index tumbled 1.9 percent to 12,528.37 points at the start of trading and the Paris CAC 40 slid 1.7 percent to 5,930.97.

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