Wall Street positive after the news that emerged from the ECB and the Fed. At about 3:50 pm Italian time, the Dow Jones rose by 182 points (+ 0.87%), the S&P 500 advanced by 0.75%, the Nasdaq Composite outperformed the others indices with a jump of about 1.2%.
The undisputed star of this week was Christine Lagarde’s ECB.
In pursuit of the fight against inflation, which in the euro area jumped to an annual rate of 9.1% in August, the Governing Council of the ECB announced yesterday that it had decided to raise all three rates by 75 basis points. ECB benchmark interest.
Therefore, the interest rates on the main refinancing operations, the marginal lending facility and the deposits with the central bank will be raised to 1.25%, 1.50% and 0.75% respectively, with effect from September 14, 2022.
“There is no predetermined path” that establishes the rate to be reached to curb inflation, to ensure that it returns to the target set by the ECB, equal to 2%. Thus the ECB number one Christine Lagarde, in the press conference following the announcement of the European central bank.
Lagarde reiterated the difference between inflation in the United States and that of the Eurozone. The first is triggered by demand, the second by supply. In any case, “we have a mission”, which is to bring down “incredibly high inflation”.
Consequently, answering a reporter’s question, the chief executive of the ECB said that, “in case of need, we are also ready to raise rates beyond the terminal rate” (which, in the case of the ECB, is not a rate that has been determined).
For his part, the head of the Fed, Jerome Powell, spoke yesterday at the same time as Christine Lagarde commented on the news that emerged from the last meeting of the Eurotower Governing Council.
Powell confirmed his determination to “finish the job” he had begun: to fight inflation with new rate hikes.
“We need to act now, openly, as forcefully as we did,” Powell said speaking at the Cato Institute’s monetary policy conference in Washington. “History strongly warns against premature easing of politics – were Powell’s words -. I can assure you that my colleagues and I are strongly committed to this project and will continue it until the work is finished ”.
On July 27, the Fed raised fed funds rates by 75 basis points: with its second consecutive 75 basis point hike, Powell & Co brought US fed funds rates into the new range of between 2.25% and 2.5%, a record since the end of 2018.
Looking to the upcoming FOMC meeting, the Fed’s monetary policy arm, economists are betting on a new monetary tightening of 75 basis points. The probability of a new maxi rate hike, after Powell’s words, has further increased, rising to 86%, according to CME Group’s FedWatch, which monitors the trend in fed funds futures.
Both Goldman Sachs and Bank of America told their clients they expect another 75 basis point hike in their late September meeting.
Yesterday Wall Street was not shocked by the words of Jerome Powell: the Dow industrial average closed the session up 193.24 points (+ 0.61%), at 31.774.51; the S&P 500 rose 26.31 points (+ 0.66%), to 4.006.19, while the Nasdaq Composite advanced 70.24 points (+ 0.60%), to 11,862.14.
The three main US equity indices are preparing to close the week in positive light, after three consecutive weeks of declines.
As of yesterday, the Dow Jones was up 1.45%, the S&P 500 by 2.09% and the Nasdaq Composite by 1.99%.
US Treasury rates have not moved too far, also looking at the maxi rate hike announced yesterday by the ECB by Christine Lagarde: 10-year Treasury rates rise to 3.323%, while the 30-year rate rises to 3.489%. Two-year rates are hovering around 3,519%, after flying to 3.55% last week, the highest since 2007.