Despite people from the central banks issuing a collective statement regarding how interest rates might remain unchanged for now, Federal Reserve officials announce the rates are likely to rise in order to deal with the subsequent threat of inflation. This statement comes on Wednesday, confirming what could be the first rise in almost three years.
The statement went as follows, “With inflation well above 2 percent and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate,” also mentioning, “Economic activity expanded at a robust pace last year, reflecting progress on vaccinations and the reopening of the economy. Indeed, the economy has shown great strength and resilience in the face of the ongoing pandemic.”
The news conference was held by Federal Reserve Chair Jerome Powell, who confirmed the likely raise would be due to labor market gains and the already escalating inflation rate. He confirmed the Fed’s “policy has been adapting to the evolving economic environment and will continue to do so.” He was sure to mention the Omicron variant’s effect on the economy is likely to wear off, due to its strain being less severe than other variants in the past. He explained the issue saying, “These problems have been larger and longer-lasting than anticipated, exacerbated by waves of the virus. While the drivers of higher inflation have been predominantly connected to the dislocations caused by the pandemic, price increases have now spread to a broader range of goods and services. Wages have also risen briskly, and we are attentive to the risks that persistent real wage growth in excess of productivity could put upward pressure on inflation.”
Futures in the stock market showed big improvement after buyers returned with investment, even while the global stock market hit its worst month since the complete crash when the pandemic landed in 2020.
Financial markets in Asia have suffered after the officials from the Federal Reserve announced the rate hike, as countries within Asia fear a rise in borrowing costs from the U.S. to affect production and profits. Asian stock market went down to its worst decrease in 15 months. Analyst Kyle Rodda commented saying, “The Fed’s gone from being the market’s best friend to a possible enemy,” instead of what they should be focusing on which is “bringing inflation down, rather than protecting asset prices.” Many global investments are even publicly hinting at removing their remaining cards from within the U.S. stock market.
“It’s all about selling longer duration assets,” and “so we are underexposed to US equities,” said PineBridge Investments LLC global head of multi-asset Mike Kelly, confirming that the current scenario was a sign for people to “get the heck out” U.S. stock market.