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The US stock indices notably derailed from the recent growth path it has charted in recent times following the rate hike news.
The US stock market and its associated indices took a major plunge at the close of trading on Wednesday as the Federal Reserve’s Open Market Committee (FOMC) hiked interest rate by 25 basis points for the 10th time. Though the rate is a mild one, the move shows the drivers of the economy are not willing to back down on the fight against inflation that was pegged at 5% for March.
The hike has ignited a bearish sentiment in the market with the S&P 500 Index (INDEXSP: .INX) slipping by 0.70% to 4,090.75. The Dow Jones Industrial Average (INDEXDJX: .DJI) also dropped 0.80% to 33,414.24 while the tech-heavy Nasdaq Composite (INDEXNASDAQ: .IXIC) ended the trading session with a 0.46% slip to 12,025.33.
The sentiment turned negative as the earlier expectation that this current rate hike might spell one of the last from the Feds was dashed by Chairman Jerome Powell. According to Powell, the hope that rate hikes will be reduced over the next couple of months should be canceled as inflation is showing no signs of abating in the near term.
Rate hikes impact the market and the economy in a whole lot of ways. While the Fed has sustained its hikes, the percentage increment is notably slower than the 75 BPS it started out with early last year. The focus is to take inflation to the desired range of 2% adjusted.
“In determining the extent to which additional policy firming may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments,” the Fed said in a statement.
US Stock Indices and Potential Future Hikes
The US stock indices notably derailed from the recent growth path it has charted in recent times following the rate hike news. With the market keenly observing the news, it noted that the Fed omitted one crucial language that reads “the Committee anticipates that some additional policy firming may be appropriate” in its latest press release.
Dropping this language has sent a message that there might be a crucial pivot in the coming months about future rate hikes. While Powell acknowledged that the omission of the language is a meaningful change, he reiterated that the FOMC’s next decision billed for June will be solely based on economic data available at the time.
The stability the market is craving is largely dependent on the stance of the Feds per its monetary policies. The banking system is still very fragile following the recent takeover of First Republic Bank (NYSE: FRC) by JPMorgan Chase & Co (NYSE: JPM). While the signs of pivoting are there, the Fed will need to move in a bid to protect the banks and other aspects of the economy.