Negative sentiment on the markets after yet another rate hike by the Fed by Jerome Powell and the spread of the new dot-plot.
From Powell’s words and from the table summarizing the rate projections of the FOMC exponents – the monetary policy arm of the Fed – it emerged that US rates will have to be raised significantly again, for US inflation to run out and back to 2%. And this, even at the risk of recession.
The Federal Reserve led by Jerome Powell has raised the key US reference rates by 75 basis points, as expected, confirming its intention to proceed with further monetary tightening to fight inflation, which has been traveling to the highest levels since the beginning of the years’ 80.
The US central bank has brought US rates into the range of 3% to 3.25%, a record since 2008, making the third consecutive tightening of 75 basis points.
The median estimate of FOMC officials shows that FOMC officials expect rates to rise to 4.4% by the end of 2022.
The Fed is therefore preparing to raise rates to 100-125 basis points by the end of the year, in the two remaining meetings of the FOMC.
The dot plot shows that six of the 19 ‘dots’ see rates even further, in the range between 4.75% and 5%, over the course of 2023.
The trend, on average, is for a terminal rate of 4.6%, a factor that would imply rate hikes in the area between 4.5% and 4.75% (given that the Fed makes quarter-point changes percentage on rates).
US Treasury rates reacted immediately, with two-year rates rocketing by 15 basis points to 4.113%, to a new record since October 2007, when they rose to 4.138%. 10-year Treasury rates have risen to 3.64%, the highest since February 2011.
Futures on the main US stock indices are negative, after closing in the red on the eve of the post Fed. At about 7.50 am Italian time, the futures on the Dow Jones lose 0.20%, the futures on the S&P 500 fall by 0.40%, those on the Nasdaq Composite fell by 0.60%.
Yesterday the Dow Jones Industrial Average slipped 522 points (-1.70%), after leaping more than 300 points in its intraday highs; the S&P 500 lost 1.71%, the Nasdaq Composite fell 1.79%.
In Asia, the Nikkei index of the Tokyo stock exchange falls by 0.51%; Shanghai -0.42%, Hong Kong worse with a decline of 2%, Seoul -0.82%, Sidney -1.56%.
Today was the day of Haruhiko Kuroda’s Bank of Japan, which confirms itself as a white fly among the central banks of many other economies, committed to averting and taming new flares of inflation.
The central bank of Japan has confirmed the reference interest rates at the lowest level ever, or at -0.1%, which means that monetary policy is still based on the instrument of negative rates, at which Christine Lagarde’s ECB he has now given up with his monetary straits.
The 10-year Japanese JGB government bond yield target was confirmed around zero.
The BOJ announced the decision to end the anti-Covid funding program, which expires this month. Still, he predicts that both short and long-term rates will remain “at current levels or lower”. The yen weakened to 145 against the US dollar following the BOJ announcement.