Wall Street slumps as Federal Reserve continues to raise rates
While the Federal Reserve delivered its fourth straight 75 bps increase on Wednesday, the “slower but higher” prospect saw the S&P 500 suffer its worst loss on a Fed decision day since January 2021.
The highest interest rate in 14 years
The US central bank raised the lending rate by 0.75 percentage points making it the fourth straight increase of that size and the sixth hike this year
As expected, Fed Chair Jerome Powell signalled the journey to curb inflation could be entering the final phase as the pace of future rate increases would consider the “cumulative tightening of monetary policy”.
The Fed’s decision from November’s FOMC meeting lifted rates to a range of 3.75% to 4%, its highest level since 2008.
Fed signals slowing down
According to the board’s statement, the Federal Reserve anticipates that ongoing increases within the target range will return inflation to two percent. Jerome Powell asserted that it was “very premature” to consider pausing rate increases as rates could peak at higher levels than previously thought.
For the first time, the Fed acknowledged the economic costs and "lags" with the policy. That being said, the Fed is unwilling to create a narrative that would suggest they are ‘pivoting’ from reducing inflation pressures.
In other words, while the Fed is considering slowing down the fastest pace of tightening in decades, investors are not in the position to expect the rate to peak and loosen policy any time soon.
Therefore, the economic strain has become the elephant in the room and will come to the forefront in the near future.
How did the market respond?
-
Stocks
While the US stocks started in the positive when Powell announced the new rate decision, things quickly changed. The equity market plunged immediately after he stated the Fed still has “some ways to go”. Powell added that it was premature to think about a pause as rates could peak at higher levels than previously thought.
The “slower but higher” prospect saw the S&P 500 suffer its worst loss on a Fed decision day since January 2021.
S&P 500 hourly chart
US dollar
The US dollar surged by more than 0.5% immediately after FOMC’s press conference. The green back is now returning to the level of 111 while strictly following the ascending trajectory.
Meanwhile, the US’s 10-year bond yield edged higher to 4.08% while the two-year yield reached 4.62%.
US dollar hourly chart
This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
Start trading forex today
Trade the largest and most volatile financial market in the world.
- Spreads start at just 0.6 points on EUR/USD
- Analyse market movements with our essential selection of charts
- Speculate from a range of platforms, including on mobile
Live prices on most popular markets
- Forex
- Shares
- Indices
