The US Federal Reserve has opened the possibility that interest rates will rise to the highest level since 2006, when they were in a range of between 5% and 5.25%. Although the organism’s projections point to 4.6% -above the 3.8% forecast in June-, six members of the committee pointed to a higher rise.
The market assimilates the message, the liquidity restriction is here to stay, and the accelerated increases in rates will continue, at least for a few more months, so the purchases continue on Wall Street, which extends yesterday’s losses, with the Dow Jones down 176 points or 0.59%, the S&P 500 falls 36 points and the Nasdaq falls 186 points or 1.66%.
Yesterday the Fed applied the third and great adjustment of 75 basis points to interest rates, taking it to 3.25%, and raised its interest forecast for the end of the year by almost 1% to 4.4%.
And Jerome Powell, president of the organization, was firm in maintaining this restrictive policy until “the job is done”, with respect to lowering high inflation, even if the measures imply an economic slowdown. Indeed, the high rates that are expected to reach imply a risk of recession.
“Powell’s admission that there will be below-trend growth for a period should be translated as central bank parlance for ‘recession.’ With the new rate projections, the Fed is engineering a hard landing; a soft landing is almost out of the question,” Seema Shah, director of global strategy at financial firm Principal Global Investors, said in a YahooFinance report.
Read more: The Fed plans to raise rates to 4.4% by the end of the year. Is another 75bp coming?
Indeed, Powell conceded that taming inflation was likely to require a sustained period of below-trend growth. But he confirmed that “restoring price stability is essential.” The Fed projected just 0.2% economic growth for this year, and 1.2% for 2023.
The inverted Treasury yield curve also continues to signal a recession, with the two-year yield soaring to 4.1%, near the 2007 high, and the 10-year note at 3.5%.
Among the stocks with the biggest movements in today’s session, there are mainly technology ones, with AMD (NASDAQ: AMD ), Nvidia (NASDAQ) and Tesla (NASDAQ ) falling between 3% and 4.6%, and Apple ( NASDAQ: ), Amazon (NASDAQ ) and Meta (NASDAQ: META ), down between 0.5% and 1.5%.