US Federal Reserve chair Jerome Powell on Friday warned of more rate hikes that have pinned stocks down in the US, with the rest of the world bracing for a knock when the markets open on Monday.
Investors were keenly awaiting Powell’s speech at the Jackson Hole symposium to pick cues on the path of interest rate hikes.
But Powell delivered a stark message: the Fed will likely impose more large interest rate hikes in the coming months and is resolutely focused on taming the highest inflation in four decades.
Powell also warned more explicitly than he has in the past that the Fed’s continued tightening of credit will cause pain for many households and businesses as its higher rates further slow the economy and potentially lead to job losses.
“These are the unfortunate costs of reducing inflation,” he said in a high-profile speech at the Fed’s annual economic symposium in Jackson Hole.
“But a failure to restore price stability would mean far greater pain.”
Stocks were swinging on Friday after Powell pushed back on Wall Street’s hopes that it may soon let off the brakes for the economy.
The S&P 500 was 2.46 per cent lower in afternoon trading, after initially losing as much as 1 per cent, after Powell said that Fed will need to keep rates high enough to slow the economy “for some time” in order to declare victory over the high inflation sweeping the country.
The Dow Jones Industrial Average was down 733.11 points or 2.20 per cent at 32558.67, as of 2.19 pm (Eastern time) and the Nasdaq composite was down 3.09 per cent.
Ahead of the speech, both the Indian equity and forex markets showed little movement on Friday as the benchmark Sensex ended with gains of 59.15 at 58833.87, while the rupee was flat against the dollar at 79.87 compared with the previous close of 79.88. Analysts said that while the Fed is widely expected to continue hiking rates to control inflation, any statement of an aggressive hike or a hawkish forecast on inflation could affect the sentiment.
In July, the US CPI inflation softened to 8.5 per cent from 9.1 per cent in the preceding month. This led to expectations that its central bank will tone down a sharp increase in interest rates at its next meeting in September.
Expectations are now that the interest rate will be hiked by 50 basis points. It has raised them 75 basis points for the second consecutive month in July. Market circles added that apart from Powell’s speech, investors will focus their attention on the annual general meeting (AGM) of Reliance Industries Ltd (RIL) next Monday.
At the equity markets, the 30-share Sensex opened firm and soared over 500 points to an intra-day high of 59321.65, but fell victim to profit-booking towards the end of the session as investors turned cautious ahead of Powell’s remarks.
While the index closed with gains of 0.10 per cent, the broader NSE Nifty advanced36.45 points or 0.21 per cent to end at 17558.90.
“Investors’ lack of confidence and caution in anticipation of the Fed chair’s remarks led to a significant sell-off towards the close of the session.
Western markets are trading with cuts as they await clues on further policy actions by the Fed,” Vinod Nair, head of research at Geojit FinancialServices, said.
Zomato sale
Venture capital firm Sequoia Capital has reduced its holding in Zomato Ltd to 4.4 percent after selling shares in the open market, according to a regulatory filing by the online food delivery platform.
Sequoia Capital had held a 6.41 per cent stake in Zomatobefore the sale.
With inputs from AP
