The Federal Reserve, which has always been perceived as overly cautious, made a radical interest rate hike decision in the early hours of today, raising rates by 75 basis points in one go, setting a new record since 1994.
Last month, the Federal Reserve decided to raise interest rates by 50 basis points, which was the highest increase in the past 20 years. However, this month's rate hike is the highest in nearly 30 years.
Unexpectedly, after such a radical interest rate hike announcement, the three major U.S. stock indexes actually rose strongly, with the Nasdaq index up by 2.5%. Is the market misjudging the impact of the interest rate hike?
01, U.S. stocks actually rose
When the U.S. stock market opened last night, the European stock market was already open. At that time, European stocks generally rose, with gains almost all exceeding 1%, seemingly very optimistic about the Federal Reserve's interest rate hike decision.
After the U.S. stock market opened, it quickly rose by more than 1%.
Until 2 a.m., there was not much fluctuation in the U.S. stock market, which always maintained a certain increase. At 2 a.m., when the Federal Reserve announced the interest rate hike decision, the U.S. stock market experienced violent fluctuations.
When everyone was worried that a 75 basis point interest rate hike would knock the market down, U.S. stocks rose again at the close. In the end, the gains of the Dow Jones Industrial Average and the S&P 500 index were both greater than 1%, while the Nasdaq's gain reached 2.5%.
Generally speaking, interest rate hikes are bearish for the stock market. Isn't this interest rate hike the case this time?
Let's analyze carefully, what's going on with this round of global interest rate hikes?02, Global Interest Rate Hikes
This year has seen a wave of interest rate hikes worldwide, with over 20 countries announcing more than 50 increases so far.
The largest interest rate hike this year was in Ukraine in June, with an astonishing increase of 1500 basis points.
The second-largest hike was in Russia, which raised rates by 1050 basis points in February due to conflict issues. However, Russia reduced rates twice in April, each time by 300 basis points, and also lowered rates by 300 basis points in May.
As of now, Peru has seen the highest number of rate hikes this year, with six increases, implementing a 50 basis point increase each month for six months.
Up to the present, May has been a month where many countries have raised rates concurrently, with nearly 17 countries announcing hikes. South Korea, the United Kingdom, and Australia each raised rates by 25 basis points, India by 40 basis points, and the United States, Mexico, Peru, South Africa, and New Zealand each by 50 basis points. Poland increased rates by 75 basis points, Chile by 125 basis points, Nigeria and Pakistan each by 150 basis points, and Egypt and Argentina each by 200 basis points.
03, Reasons for Interest Rate Hikes
The reason for the United States' rate hike is due to a 8.6% increase in CPI in May, the highest in 40 years. The United Kingdom is also raising rates to control inflation, and it is possible that the European Central Bank will announce a 25 basis point hike in July for the same reason.
Inflation in Europe rose by 8.1% in May, indicating a worrisome trend of accelerating inflation. Canada is currently facing pressure from energy and agricultural product prices.
Emerging markets, affected by the rise of the US dollar, as well as inflation and the reflux of hot money, are being forced to raise interest rates.So, in general, the current interest rate hikes are primarily aimed at combating inflation and balancing exchange rates.
04. Consequences of Interest Rate Hikes
Moderate interest rate hikes can be an adjustment for the economy, but overly aggressive hikes may cause devastating blows to the economy.
For ordinary families, inflation and rising prices have already increased the burden of living. After interest rate hikes, higher interest rates will increase the cost of borrowing for households, including the pressure of mortgages and consumer loans.
This will also reduce people's desire to consume and their purchasing power.
For businesses, suppressed consumption leads to excess inventory. Moreover, businesses will also face increased interest pressure due to interest rate hikes.
In the real estate industry, increased pressure on homebuyers will lead to difficulties in sales.
Negative impacts are also seen in exports, as a stronger local currency exchange rate leads to reduced exports. Imports may experience input-type inflation due to increased costs of bulk commodities.
For the stock market, the announcement of interest rate hikes may cause stock prices to fall.
As the US dollar appreciates with interest rate hikes, countries with less foreign exchange reserves and excessive US debt may face crises, such as some Latin American countries.Now it seems that these impacts will gradually emerge in the future. The dire consequences of the United States' substantial interest rate hikes will have a significant impact on the global economy. The sharp rise in the U.S. stock market last night may be another "false market".