Stocks rose Wednesday on Wall Street after the biggest increase in interest rates by the Federal Reserve since 1994and your guarantee that such increases will not be common.
The Federal Reserve raised its key short-term interest rate by three-quarters of a percentage point, triple the usual, in their attempt to curb high inflation. Powell said the Fed could consider a half-point or three-quarter point hike at its next meeting in July, before the increases return to more normal.
“The Fed is serious about inflationsaid Brian Jacobsen, senior investment strategist at Allspring Global Investments. “Instead of trying to let it fall naturally, they want to give it a good boost, even if it means slowing down growth” of the economy.
Investments around the world, from the bonds until the bitcoinhave slumped this year as high inflation forces the Federal Reserve and other central banks to quickly withdraw the supports that were propping up markets early in the pandemic. The fear is that too aggressive interest rate hikes will push the economy into a recession.
The Fed”is not trying to induce a recession now, let it be clearPowell said. He said the big hike on Wednesday was about the Fed speeding up the move to get interest rates back to normal more than anything, calling it “front loading”.
Even if central banks pull off the tricky trick of slowing down the economy enough to kill off the inflationwithout producing a recessionthe highest interest rates downward pressure on investment prices despite everything. Hardest hit have been the investments that soared the most in the era of easy money of ultra-low interest rates, including high-growth tech stocks and cryptocurrencies.
Treasury yields have soared to their highest levels in more than a decade on expectations of a more aggressive Fed., although they relaxed Wednesday after Powell’s comments. A disappointing report showing US retail sales unexpectedly fell in May from April contributed to this. So did a weaker-than-expected report on manufacturing in New York state.
The economy remains largely resilient amid a red-hot job market, but has shown some signs of difficulty recently. Last week, for example, The preliminary reading of consumer confidence sank to its lowest level, due in large part to high gasoline prices.
The two-year Treasury yield fell to 3.26% from 3.45% on Tuesday, with the biggest move coming after Powell said it was unusual for rates to be raised by 0.75 percentage point. The 10-year Treasury yield fell to 3.36% from 3.48%.
“The bond market right now is driving the broader market and that will continue.said Jay Hatfield, CEO of Infrastructure Capital Advisors.
The prices of cryptocurrencies continued to sink, with bitcoin falling as low as $20,087.90, almost 71% below its record high of $68,990.90 set late last year. In afternoon trading it was down 2.2% to $21,652, according to CoinDesk.
Its decline has worsened as investors increase their expectations about how aggressively the Federal Reserve will act on interest rates.
A week ago, hardly anyone expected a three-quarter percentage point hike, which is the general expectation for this afternoon. However, on Friday, a surprising report sent the markets shivering by showing that consumer-level inflation unexpectedly accelerated last month.
The data dashes Wall Street‘s hopes that inflation has already peaked, and seems to force the Federal Reserve to be more aggressive. The Federal Reserve has been criticized for moving too slowly to curb inflation. Other central banks around the world are also raising interest rates, adding to the pressure.
Japan‘s central bank has kept rates near record lows. This has sent the yen falling to a two-decade low against the US dollar as traders shift capital in search of higher yields.
The war in Ukraine has helped push up oil prices, as the region is a major energy producer. On the other hand, infections covid in China have led to factory closures and disruptions to supply chains.
All this has contributed to the S&P 500 has fallen more than 20% from its record set in early Januarywhich has led Wall Street to what investors They call it a bear market.
Markets were more relaxed on Wednesdaywith stocks rising across Europe and parts of Asia.
The DAX Germany gained 1.4% and France’s CAC 40 rose 1.3%, after the European Central Bank called an unscheduled meeting to address fears that rising interest rates will cause market turmoil. mainland bonds. The central bank did not give a detailed plan, but said it would act if necessary against “fragmentation” as bond yields in some European countries rise much more than others.
The actions in Shanghai they gained 0.5% after government data showed Chinese factory activity picked up in May, as anti-virus controls shutting down businesses in Shanghai and other industrial hubs were relaxed. However, the actions of seoul Y tokyo fell more than 1 percent.
(With information from AP)
US Treasury bonds hit their highest yield in the last decade