HONG KONG (AFP) – Asian and European markets sank yesterday and the dollar rallied after the Federal Reserve unveiled a third straight jumbo interest rate hike, said more were in the pipeline and warned the battle against inflation was straining the United States (US) economy.
While the three-quarter-point rise was widely expected, there was some surprise at the central bank’s forecast that borrowing costs would likely be held above four per cent throughout next year.
Fed boss Jerome Powell reiterated his determination to focus on bringing down inflation – which is at a four-decade high – and accepted that the campaign would hit Americans hard.
“We have got to get inflation behind us,” Powell said after a two-day meeting of the Fed policy committee. “I wish there were a painless way to do that. There isn’t.”
He added that “the historical record cautions strongly against prematurely loosening policy” and the Fed would “keep at it until the job is done”.
All three main indexes on Wall Street tumbled on Wednesday as traders contemplated an era of higher-for-longer rates, which could hit companies’ bottom lines.
Asia followed suit, with Hong Kong down at an 11-year low – while Tokyo, Shanghai, Seoul, Singapore, Mumbai, Taipei and Manila also down.
London, Paris and Frankfurt extended the losses in early trade. However, the dollar continued its strong march higher, striking a fresh 24-year high of JPY145.90, which prompted the government to embark on a rare intervention to protect its currency.
The US Fed has for months tried to walk a fine line between fighting soaring prices and trying to keep the economy from contracting, but officials accept the chances of success are narrow.
“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 channelled his inner Paul Volcker… talking about the forceful and rapid steps the Fed has taken, and is likely to continue taking, as it attempts to stamp out painful inflation pressures and ward off an even worse scenario later down the line.” Volcker used aggressive measures to quell runaway prices in the 1980s, when inflation was last as high as it is now.
Commentators are now betting on a fourth straight 75-basis-point rate hike at the next Fed meeting in November.
All three main indexes on Wall Street tumbled on Wednesday as traders contemplated an era of higher-for-longer rates, which could hit companies’ bottom lines.
