Home » The Fed raised interest rates by 25 basis points, and Powell released a major signal!US stocks plummeted by more than 730 points

The Fed raised interest rates by 25 basis points, and Powell released a major signal!US stocks plummeted by more than 730 points

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The Fed raised interest rates by 25 basis points, and Powell released a major signal!US stocks plummeted by more than 730 points

(Original title: Breaking out in the early morning! The Fed raised interest rates by 25 basis points, and Powell released a major signal! US stocks plummeted by more than 730 points, and bank stocks collapsed again. What happened?)

Just now, the Fed made the most difficult decision ever.

At 2 am on March 23, Beijing time, the Federal Reserve announced that it would raise the target range of the federal funds rate by 25 basis points to between 4.75% and 5%, the highest level since October 2007. Maintained the slowest pace of rate hikes since March 2022, in line with market consensus expectations.

Subsequently, during the press conference held by Federal Reserve Chairman Powell, US Treasury Secretary Yellen’s statement “scared” US stocks. It said the U.S. government is not considering expanding the scope of federal deposit insurance. After this statement came to fruition, U.S. bank stocks fell sharply in late trading, and the decline quickly spread to the entire market. The three major U.S. stock indexes collectively dived. The Dow Jones Index fell by more than 731 points in late trading. The S&P 500 fell 1.65%, while the Dow fell 1.63%.

In the context of the liquidity storm in the banking industry, panic and anxiety continue to hang over the US financial market. Any statement made by the Fed officials will affect the heartstrings of the market. Powell said that if individual banking problems are not resolved, the banking system may be threatened, and that the situation will continue to be closely monitored and prepared to use all tools to ensure the safety and soundness of the banking system.

Yellen “scared” US stocks

At a critical moment, the Federal Reserve’s interest rate meeting in March and Powell’s latest statement have become the focus of the global market.

At 2 a.m. Beijing time on March 23, the Federal Open Market Committee (FOMC) announced that it would raise the target range of the federal funds rate by 25 basis points to between 4.75% and 5%, the highest level since October 2007. Achieving maximum employment and bringing inflation down to 2 percent.

At the same time, the Federal Reserve also announced that it raised the reserve balance interest rate by 25 basis points to 4.90%, and raised the discount rate to 5%, both in line with expectations; it will continue to shrink its balance sheet at the same speed, in line with market consensus expectations.

The decision to raise interest rates may be the most difficult decision made during Powell’s tenure. On the eve of the decision to raise interest rates, Wall Street pointed out that this is the most uncertain Fed meeting since 2008.

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Currently, the Federal Reserve is caught in a “dilemma” between a banking crisis and an inflation crisis. Wall Street analysts lamented that the Fed’s situation is indeed very fragile and disturbing.

In early March, the sudden collapse of Silicon Valley Bank and Signature Bank set off a super storm in the European and American banking industry. Subsequently, UBS quickly acquired Credit Suisse, a crumbling century-old bank, and global regulators had to take urgent action to support financial institutions. system, the Federal Reserve has also urgently rolled out a new arrangement to help banks.

Therefore, the current market is more concerned about whether the Fed’s 25 basis point rate hike will become a “watershed” in this round of rate hike cycle.

The Federal Reserve’s decision statement released after the meeting deleted the wording “continued interest rate hikes are appropriate” and changed it to “it is expected that some additional policy tightening may be appropriate”. The media believes that this is Fed officials hinting that they may end raising interest rates soon.

After the Fed announced its decision, the Dow and S&P, which fell slightly, both turned up, and the Nasdaq expanded to 0.6%.

However, U.S. Treasury Secretary Yellen’s words “scared” the U.S. stock market. When Powell mentioned at the press conference that he would continue to raise interest rates to curb high inflation, Yellen said in the US Congress that the US government did not consider expanding the scope of federal deposit insurance, and the speed at which deposits were withdrawn from Silicon Valley banks was unprecedented. Public confidence in the US banking system must now be improved.

After Yellen’s words came to the fore, U.S. bank stocks, especially First Republic Bank, Westpac United Bank and other regional banks, fell sharply in the intraday session. The decline spread to the entire market. The three major U.S. stock indexes collectively dived. 731 points, as of the close, the Nasdaq fell 1.60%, the S&P 500 fell 1.65%, and the Dow fell 1.63%.

As of the close, the regional bank stock ETF fell 5.7%, of which Westpac United Bank fell 17.1%, First Republic Bank closed down nearly 15.5%, and Alliance Western Bank fell nearly 5%. , New York Community Bank fell 4.7%; among the big banks, Bank of America and Wells Fargo fell 3.3%, Citigroup fell 3%, JPMorgan Chase fell about 2.6%, Morgan Stanley fell nearly 1.4%, and Goldman Sachs fell 1.1%.

Popular Chinese concept stocks also followed the U.S. stock market and fell. The Nasdaq China Golden Dragon Index closed down 1.7%, 21Vianet fell more than 11%, Keke fell more than 4%, Pinduoduo fell more than 4%, JD.com and Xiaopeng Motors fell more than 4%. 2%, Baidu fell 2%, and NetEase fell more than 1%. In the fourth quarter, Tencent’s fan list, whose revenue returned to positive growth, rose by about 1.9%.

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Key remarks from the Fed

The decision to raise interest rates by 25 basis points is undoubtedly the biggest highlight of the Fed’s decision tonight. However, against the background of the liquidity crisis in the European and American banking industries, panic and anxiety continue to hang over the US financial market. Therefore, any statement made by Fed officials will tug at the heartstrings of the market.

At the beginning of the press conference, Powell got straight to the point and talked about his views on the current US regional banking crisis. It said that a small number of banks have experienced serious difficulties, but the loan programs of the Federal Reserve, the Treasury Department and the Federal Deposit Insurance Corporation (FDIC) have effectively met demand and also shown sufficient liquidity, and the savings of all depositors are safe.

Powell warned that if individual banking problems are not resolved, the banking system may be threatened, which is why regulators have taken decisive action. At the same time, regulators will also learn from this incident and will continue to monitor the situation closely. Prepare to use all tools to ensure the safety and soundness of the banking system.

Powell emphasized that the failure of Silicon Valley Bank was an exception and that there were no widespread weaknesses in the U.S. banking system. He said that in the past week, the deposit flow of the US banking system has stabilized, and the banking system is healthy and resilient. He stressed that the rate hike has been fully priced in and many banks are able to handle it. He stressed that depositors should take it for granted that their deposits are safe.

Powell revealed that when interest rates are rising, it is not surprising that various companies, including banks, face interest rate risks. Before the crisis, the Fed’s regulatory team had cooperated with Silicon Valley Bank. But he said the pace of the bank run in Silicon Valley is very different from what we have seen in the past, and the speed at which the bank run in Silicon Valley has occurred suggests that changes in regulation and oversight may be needed.

Talking about the impact of this crisis, Powell said that recent events in the banking industry will lead to tighter credit conditions, which will affect the economy and the response measures we need to make. This statement tries to reflect the pressure on the banking industry. uncertainty.

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The interest rate storm is about to stop?

As the quarter-end interest rate meeting, the Federal Reserve also released the latest economic forecasts and interest rate dot plots.

After the Silicon Valley Bank crisis, the U.S. regional banking industry is in trouble, and the risk of U.S. economic recession has also become one of the risks that the market is worried about.

In the latest economic forecast report, the Federal Reserve lowered its US economic growth forecast for this year and next two years: the US GDP growth forecast for 2023 was lowered to 0.4%, and the US GDP growth forecast for 2024 was lowered to 1.2%.

Powell also emphasized the current risks facing the US economy at the press conference. It said that higher interest rates and slower economic growth are having a drag on U.S. companies, but almost all FOMC members believe that the risks facing U.S. economic growth are mainly on the downside.

At the same time, the Federal Reserve further raised its nominal PCE inflation forecast for this year and raised its PCE inflation forecast for 2023 to 3.3%.

Powell said that the current level of inflation in the United States is still too high, the labor market is still too tight, and the Federal Reserve is still strongly committed to reducing the inflation rate to the established target of 2%.

In addition, the latest interest rate dot plot shows that 18 Fed officials overall expect the federal funds rate to reach 5.1% by the end of 2023, which means that the Fed may only have room to raise interest rates once more within this year, and to raise interest rates by 25 basis points.

Powell also revealed that in the days leading up to the March meeting, a “pause” was considered. However, the interest rate hike has been unanimously supported by FOMC members, and it is very important to maintain the market’s confidence in the Fed.

Proofreading: Li Lingfeng

Disclaimer: The Securities Times strives for truthful and accurate information, and the content mentioned in the article is for reference only and does not constitute substantive investment advice, so operate at your own risk

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