Asian markets extended a bearish sell-off on Wall Street after the Federal Reserve unveiled a third straight jumbo interest rate hike on Thursday, said more were in the pipeline, and warned against inflation. The war is depressing the American economy.
While a three-quarter point rise was widely expected, there was some surprise at the central bank’s forecast that borrowing costs would remain above four percent over the next year.
Fed boss Jerome Powell reiterated his commitment to focus on reducing inflation — which is at a four-decade high — and acknowledged that the campaign would hit Americans hard.
“We have to get inflation behind us,” Powell said after a two-day meeting of the Fed’s policy committee. “I wish there was a painless way to do this. There isn’t.”
He added that “the historical record strongly warns against premature policy easing” and the Fed “will stick to it until the job is done”.
The bank has tried for months to walk a fine line between fighting rising prices and trying to keep the economy from shrinking, but officials admit the chances of success are low.
“With the new rate projections, the Fed is engineering a hard landing — a soft landing is almost out of the question,” said Seema Shah of Principal Global Investors.
“Jerome Powell almost channeled his inner Paul Volcker…talking about the bold and aggressive steps the Fed has taken, and is likely to continue, as it eases painful inflationary pressures.” tries to end and worse-case scenario later. line”
Volcker used aggressive measures to control runaway prices in the 1980s, when inflation was last as high as it is now.
Observers are now betting on a fourth straight 75-basis-point rate hike at the Fed’s next meeting in November.
All three major indexes on Wall Street fell on Wednesday as traders considered a prolonged period of high rates, which could affect companies’ bottom lines.
- ‘bitter medicine’ –
Asia followed suit, with Tokyo, Hong Kong, Seoul, Taipei and Manila each dropping at least one percent. Shanghai, Singapore and Jakarta were also in the red.
“This meeting shows once again that the Fed is willing to do what is necessary to get inflation under control. It will reduce demand by holding rates longer — even if its That means lost growth and jobs,” said Christian Sherman. Asset management firm DWS.
“The current view of central bankers is still that this will lead to a slowdown, but not a recession. We fully agree that the bitter medicine is necessary to achieve price stability. But we fear that The ramifications will be more severe than the Fed is currently offering.”
And Fidelity International’s Anna Stopnitska said a long-held hope for a change in direction from the Fed “now looks more distant”, although added that a significant tightening of monetary conditions could see an earlier halt to rate hikes.
Investors are now bracing for similar actions from central banks around the world, including the UK, Switzerland, Taiwan, Indonesia and the Philippines.
Still, the Bank of Japan decided not to budge from its ultra-loose measures because of its determination to kickstart the country’s booming economy, a policy that hit a 24-year low on Thursday. The yen has depreciated by 20 percent over the year.
The currency briefly breached the 145-yen-per-dollar mark not seen since 1998, raising the prospect that authorities will step in to provide support.
Other currencies were also under pressure, with the euro at a 20-year low and sterling at a 37-year low.
Oil prices rose after a roller coaster ride on Wednesday.
Both agreements came in response to President Vladimir Putin’s announcement of a partial mobilization of the Russian military and veiled threats to use nuclear weapons against the West.
But they soon retreated as investors once again turned to the potential impact on demand from an expected recession in global economies.
