Our fees are changing on 4 March 2023. Learn more.

When you invest, your capital is at risk.

Share

Stocks slid in volatile session after U.S. Fed delivered another aggressive rate hike

The Federal Reserve raised rates by 75 basis points and forecast more sizable rate hikes in its fight against inflation, actions widely expected by traders.

The United States Federal Open Market Committee (FOMC) announced the decision to raise U.S. interest rates by 75 basis points, raising it to the range of 3.00-3.25% yearly.

The committee cited modest growth in production and production, as well as robust job gains, low unemployment and persistently high inflation as the main drivers of this decision.

Markets initially nose-dived after the release of the statement, in which the FOMC stated that it would continue to proceed with its balance sheet reduction as it continued to fight against inflation.

Despite the initial shock, markets seem to find some hope in the speech of FED president Jerome Powell in the press conference held after the statement release.

“We are moving our policy stance purposefully to a level that will be sufficiently restrictive to return inflation to 2 per cent,” Powell told reporters in Washington following the meeting. 

Powell affirmed that “it’s very likely there’ll be some softening in the labor market”, reassuring investors that the pace of future rate increases will be data dependent and that the pace could be slowed down to assess some of its effects, driving markets higher.

However, the chairman also said that the FED seeks to return to “sufficiently restricted rates” and that the housing market may have to go through a correction, which erased most of the bounce in equities that happened during the dovish remarks.

The FED president stated that the FOMC board is split between 100-125bps rate raises for the rest of 2022. This as the board revised its expectations for unemployment in 2022 to 3.8%, up just an inch from the 3.7% rate forecasted in June. For 2023, the committee expects interest rates to stay between 4.00 and 5.00%, before gradually tapering off in 2024 and the following years.

Market Reaction

The move by the Fed was mostly baked in by U.S. investors, particularly after last month’s CPI read.  Over the month the S&P 500 is down over 8% and 18% for 2022.

By the end of the day, the S&P 500 closed -1.7% lower, at 3,789 points. All major S&P 500 sectors finished the session in negative territory, led to the downside by consumer discretionary, communication services and growth-focused companies. 

The biggest gainers of the day were stocks of consumer staples, like General Mills (GIS)Kellogg (K) and Campbell Soup (CPB), as investors flocked to inflation and recession-proof stocks. 


Don’t have Stake?

Start ahead of the game. Get a free stock in one of Nike, Dropbox, GoPro or a mystery stock when you sign up and fund your account within 24 hours.

When you invest, your capital is at risk.

Stake logo
Download Stake
App Store logo
Google Play logo
The value of investments can go up as well as down and you may receive back less than your original investment. Any advice is of a general nature only. As investments carry risk, before making any investment decision, please consider if it’s right for you and seek appropriate taxation and legal advice. The information on our website or our mobile application is not intended to be an inducement, offer or solicitation to anyone in any jurisdiction in which Stake is not regulated or able to market its services. At Stake, we’re focused on giving you a better investing experience but we don’t take into account your personal objectives, circumstances or financial needs. Please view our Terms & Conditions, Privacy Policy and Disclaimers before deciding to use or invest on Stake. By using the Stake website or service in any way, you agree to our Privacy Policy and Terms & Conditions. All financial products involve risk and you should ensure you understand the risks involved as certain financial products may not be suitable to everyone. Past performance of any product described on this website is not a reliable indication of future performance. Stake is the trading name of Hellostake Limited (no. 11676409), authorised and regulated by the UK Financial Conduct Authority (FRN: 830771).

Copyright © 2023 Stake. All rights reserved.