On Tuesday (GMT+3), the US Federal Reserve hiked its benchmark interest rate by 0.75%, or 75 basis points. While the size of the hike was in line with market expectations, Fed Chair Jerome Powell signalled in his speech that further outsized rate hikes are to be expected, reiterating that the Fed will “keep at it“ to bring down inflation.
The benchmark rate is now at a range between 3.00% to 3.25%, with a forecast of 4.4% by the year’s end and 4.6% in 2023. Interest rates are now their highest since 2008.
Core CPI figures came in hotter-than-expected at 0.6%, and while year-on-year numbers came in at 8.3%, month-on-month inflation rose only 0.1% – whether numbers have peaked remains to be seen in October.
While markets have factored in a 0.75% hike prior to the Fed’s decision, Powell’s signal for further large increases sent the markets into a risk-off mood. The S&P 500 dipped 1.7%, while the Nasdaq dropped 1.8%. Bitcoin, following in the steps of tech shares, tumbled below $19,000.
The dollar index, meanwhile, soared above $111 as the euro-dollar parity becomes a resistance level for the shared currency, with the euro on a continuous downward slide to the 0.981 level. The pound hit a 37-year low, losing 0.97% to come under the 1.1300 mark.
Fed hawkishness is expected to continue, with markets taking to heart Powell’s declaration that there is no “painless way” to deal with inflation. For context, Powell used the word “pain” at least thrice during his speech.
The markets are now awaiting further employment data like the NFP and unemployment rate, which will give an indication of the size of the hit the US economy has taken due to the Fed’s continuous rate hikes. The next soonest data is the US Initial Jobless Claims figures for the week of 22 September, which will be released at 15:30 (GMT+3) on Thursday, 22 Septembre.
As a friendly reminder, do keep an eye on market changes, control your positions, and manage your risk well.