The US Federal Reserve (Fed) raised its policy rate by 75 basis points to 1.50-1.75 percent at its June meeting, which ended yesterday. The Fed’s decision to raise interest rates by 75 basis points after the inflation data announced last week in the US reached a 41-year high again was the fastest single rate hike since 1994.
The Fed’s inflation forecast for this year rose from 4.3 percent to 5.2 percent. The growth forecast for the US economy for this year was reduced from 2.8 percent to 1.7 percent. The median expectation for the funding rate increased from 1.9 percent to 3.4 percent for 2022, from 2.8 percent to 3.8 percent for 2023 and from 2.8 percent to 3.4 percent for 2024.
Fed Chairman Jerome Powell said after the meeting that the bank could raise interest rates by 50 or 75 basis points at the July meeting in response to high inflation, adding that a 75 basis point increase in the interest rate was unusually large and that he did not expect moves of this size to be common.
After Powell’s statements that lowering inflation is their priority and that they are moving quickly to do so, equity markets entered an upward trend with decreasing uncertainties for the future.
DOLLAR INDEX NEAR 20-YEAR HIGH
With the dollar declining against other currencies, the dollar index returned from a 20-year high and stabilized below 105.
THE UK ALSO FOLLOWED THE FED
While central banks on a global basis continued to become hawkish in the fight against inflation, the Bank of England also raised its policy rate by 25 basis points to 1.25 percent.
US FUTURES NEGATIVE
The New York stock market started the day with a sharp decline due to fears of recession following the Fed’s interest rate hike. At the opening, the Dow Jones index lost over 300 points and fell 1.18 percent to 30,305.74 points.
The S&P 500 index fell 1.63 percent to 3,728.18 points and the Nasdaq index fell 2.64 percent to 10,806.02 points.
EUROPEAN STOCK MARKETS DOWN
European stock markets ended the day lower as the Fed’s aggressive rate hike raised concerns about a possible recession at a time when global economies are facing high inflation. The STOXX600 index, which includes Europe’s largest companies, lost 2.47 percent to 402.88 points.
The FTSE 100 index in Britain fell 3.14 percent to 7,044.98 points, the DAX 30 index in Germany fell 3.31 percent to 13,038.49 points, the CAC 40 index in France lost 2.39 percent to 5,886.24 points and the FTSE MIB 30 index in Italy fell 3.32 percent to 21,726.64 points.
Euro/dollar parity increased by 0.86 percent to 1.053 as of 19.18 p.m.
Investors in Europe focused on the rise in inflation, the possibility of recession and the monetary policies of central banks.
Total sales in the EU car market fell by more than 10 percent in May. Russia’s natural gas deliveries to Europe decreased with the reduction of capacity in Nord Stream.
ASIAN STOCK MARKETS MIXED
Asian stock markets followed a mixed course after the US Federal Reserve’s (Fed) decisions yesterday. With these developments, the Shanghai composite index in China decreased by 0.6 percent to 3,285 points and the Kospi index in South Korea increased by 0.2 percent to 2,451 points.
In Japan, the Nikkei 225 index rose 0.4 percent to 26,431 points, while the dollar/yen parity was balanced at 134.3, 0.4 percent above the previous closing level.
