US stock indices have deviated significantly from their recent growth trajectory following the interest rate hike news.
The US stock market and related indices saw a significant drop in closing trading on Wednesday as the Federal Reserve Open Market Committee (FOMC) High interest rate by 25 basis points for the tenth time. Although the rate is moderate, the move shows that the engines of the economy are not willing to back down from fighting inflation which was pegged at 5% for the month of March.
The rally ignited bearish sentiment in the market as the S&P 500 (INDEXSP: .INX) fell 0.70% to 4,090.75. The Dow Jones Industrial Average (INDEXDJX: .DJI) fell 0.80% to 33414.24 while the high-tech Nasdaq Composite (INDEXNASDAQ: .IXIC) ended the trading session down 0.46% at 12025.33.
Sentiment turned negative as earlier expectations that an existing rate hike could lead to one of the Fed’s last hikes were shattered by Chairman Jerome Powell. According to Powell, the hope of lower interest rate hikes over the next couple of months should be quashed as inflation shows no signs of abating in the near term.
Increasing prices affect the market and the economy in several ways. While the Fed has maintained its increases, the percentage increase is markedly slower than the 75 basis points (BPS) it began early last year. The focus is on moving inflation into the required range of 2% adjusted.
In determining the extent to which additional policy stabilization to return inflation to 2 percent over time may be appropriate, the Committee will take into account the cumulative tightening of monetary policy, the delays with which monetary policy affects economic activity and inflation, and on economic and financial developments. The Federal Reserve said in a statement.
US stock indices and potential future highs
US stock indices have deviated significantly from their recent growth trajectory following the interest rate hike news. With the market watching the news intently, he noted that the Fed omitted one crucial language stating that “the committee anticipates that some additional policies may be appropriate” in its latest press release.
Dropping this language sent the message that there could be a critical pivot in the coming months around future price hikes. While Powell acknowledged that deleting the language is a meaningful change, he reiterated that the next FOMC decision in June will be based solely on the economic data available at the time.
The stability that the market craves depends to a large extent on the stance of the Federal Reserve on its monetary policies. The banking system remains very fragile after the recent acquisition of First Republic Bank (NYSE: FRC) by JPMorgan Chase & Co (NYSE: JPM). While the signs of pivoting are there, the Federal Reserve will need to act in an effort to protect the banks and other aspects of the economy.
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Benjamin Godfrey is a blockchain enthusiast and journalist who enjoys writing about real-world applications of blockchain technology and innovations to drive public acceptance and global integration of the emerging technology. His desires to educate people about cryptocurrencies have inspired his contributions to popular blockchain-based media and websites. Benjamin Godfrey is a fan of sports and farming.
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