News Digest: Fed tempers interest rate hikes, but markets are worried
December 1, 2022
The Fed hiked interest rates yet again, but the quantum of the increase was limited to 0.5%, the lowest that we’ve seen since they started clamping down on monetary supply to curb inflation. However, the market response was an adverse one, in spite of investors being optimistic about the outcomes from the Fed meeting.
The S&P 500 declined 1.7%, the Nasdaq lost 2.5% and the DJIA was down by 1.7% – all despite the markets having already baked the quantum of the rate hike into its expectations. So, what prompted the negative sentiment?
Analysts say it was the comments from Jerome Powell who reiterated the Fed’s commitment to staying the course for bringing down inflation. His comment indicated a longer period of such rate hikes, which meant that investors can safely expect higher rates for longer, with a possible recession coming along with it. In other words, there was no scope for a soft landing where Fed rates would go up just enough without causing an economic downturn.