HomeWorldStocks plunge as post-Fed rally fades amid global effort to curb inflation

Stocks plunge as post-Fed rally fades amid global effort to curb inflation

US stocks fell on Thursday after the Federal Reserve Biggest rate hike in decades and as central banks, including the Bank of England, followed up with hikes of their own in an effort to control rising inflation.

Following the Fed’s 0.75 percentage point hike in its benchmark rate on Wednesday, the Bank of England increased its rate by 25 basis points to 1.25%.

“Other central banks have joined the tightening parade,” Art Hogan, chief market strategist at National Securities Corp., told CBS MoneyWatch. “Markets are looking at the fact that this inflation problem is global and all central banks are lagging behind and need to become more aggressive.”

The Fed has quickly switched gears this year from propping up the economy during the pandemic to trying to stifle a rise in consumer prices, which have been rising at the fastest rate since the 1980s.

Policymakers raised the federal funds rate, which controls how much banks pay to borrow money from each other. 0.25% of a percentage point in March and followed by that with a half point move in May. The push to curb consumer demand and rein in inflation is raising concerns that higher interest rates could trigger a recession.

The Swiss National Bank raised its key interest rate for the first time in 15 years, a surprise move that rattled the market.

“The Swiss National Bank came out of nowhere, and when you include central banks and emergencies in the same sentence, that tends to raise some eyebrows,” Hogan noted.

A look at how the Fed’s rate hike could affect consumers


Still, Thursday’s market decline is in keeping with recent history, Hogan noted. “Over the last six Fed meetings, the market rallied one day and sold off the next day, so in terms of perceptible patterns, it looks like we need to think again on Thursday,” he said.

In morning trading, the Dow Jones Industrial Average fell 766 points, or 2.5%, to 29,901. The S&P 500 fell 102 points, or 2.7%, to 3,686, while the tech-heavy Nasdaq Composite lost 315 points, or 2.8%, to 10,784.

Data showing US new home starts fell in May added to the gloomy outlook on Wall Street.

“The market mindset is extremely negative – all rallies are seen as an opportunity to sell more stocks as a recession is believed to be inevitable (hardly anyone thinks the US economy can avoid a recession with the Fed tightening so aggressively), Adam Crisafulli of Vital Knowledge said in a report.

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