Reactions From The Market Trail Jerome Powel’s Comments On Rates
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The U.S. Federal Reserve shifted its outlook on its tightening policy from a sharp tightening policy to a longer and more relaxed outlook. The market reacted to the news as bond yields and dollars took a marginal leap. This comes as England is about to set the biggest rate hike in decades.
Powell Quashed Investors’ Excitement
Investors were initially excited that the U.S. Fed is finally taking a break from high-interest rate hikes after indicating that the next increase will be very low. After raising the rate by 75 basis points to 3.75- 4.0%, the Fed is looking to slow down a bit. Brian Daingerfield, the analyst at NatWest Markets, stated that the Fed would be prioritizing lowered increases for a longer period than a much bigger increase now. “The tightening cycle is officially now a marathon, not a sprint,” he added.
However, Fed Chair Jerome Powel cut shut whatever excitement investors were having by saying it was ‘very premature to consider slowing down on the high-interest rate hike. He even added more fear by pointing out that the upcoming hike would be likely higher than previously expected.
Futures were divided on whether the Fed would remain at 75 basis points or come down to 50 basis points in December. They also believe there will be little possibility of a rate cut until December 2023.
The Bank Of England Sets To Take Rates To The Roof
Analysts at Goldman Sachs noted that there is a risk of its peak funds rate forecast of 4.75 to 5% tilting towards the upside.
These were not the positive results the equity market was expecting. As a result, Wall Street fell considerably after Powell’s comments. S&P 500, Nasdaq futures, and Dow Jones all fell 0.1%-0.2%. Asia share markets were down 1.6% in a single trading day as unattractive Chinese PMI numbers contributed to the gloom.
The next point of attention would be the Bank of England as it prepares to add rates. The market is already priced for a rate hike of 75 basis points. This will be its highest since late 2008.
The BoE is also set to release its monetary policy report, which will include new GDP and CPI forecasts. It will also indicate how fast the BoE sees Europe’s second-largest economy weakening.