(Source = AFP Federation)

Powell “I’m not considering a 0.75%p rate hike” … New York stocks surged around 3%, ‘cheers’

(Source = AFP Federation)

The Federal Open Market Committee (FOMC) has raised its benchmark interest rate by 0.5 percentage points. Fed Chairman Jerome Powell suggested that it would consider raising rates by 50 basis points (0.5 percentage points) a couple of times in the future, but dismissed the possibility of a 0.75 percentage point increase. Thanks to this, the New York Stock Exchange gained around 3%.

The US Federal Reserve issued a statement after the two-day FOMC meeting on the 4th (local time) and announced that it would raise the key interest rate by 0.5 percentage points, from the current 0.25-0.5%. As a result, the US benchmark interest rate rose to the 0.75-1.0% level.

In a separate interview, Chairman Powell said, “There is a widespread perception among the committee that a 50bp rate hike should be considered at the next two meetings.” However, he did not actively consider the possibility of a more rapid rate hike of 0.75 percentage points, he said. Earlier, at the FOMC’s regular meeting in March, the Fed raised the key interest rate by 0.25 percentage points, the first in three years and three months, and hinted at continued rate hikes at every six meetings remaining this year.

The Fed’s 0.5 percentage point increase and quantitative tightening this time are interpreted as reflecting its strong will to prevent the worst price increase on the premise that the overall economic base is strong. The Federal Reserve said in a statement that it was “taking a very high degree of caution on the risk of inflation” and noted that “the coronavirus lockdown in China is likely to exacerbate supply chain conditions.” “The Russian invasion of Ukraine is creating a serious economic crisis, and its impact on the US economy is extremely uncertain,” he said.

After the FOMC ended on the same day, the New York stock markets all strengthened. The Dow Jones Industrial Average closed at 34,061.06, up 2.81% from the previous day. The S&P 500 rose 2.99% to close at 4300.17, and the Nasdaq index surged 3.19% to close at 12,964.86.

The increase was 0.5 percentage points, the largest increase in 20 years, and quantitative tightening was also decided, but this is because it was evaluated that it was at a level that did not deviate from market expectations. In particular, at a press conference held after the meeting, when Chairman Powell remarked that “we are not actively considering a 75bp rate hike,” the stock market immediately took a sharp turn. In the meantime, the market had been expecting a 75bp rate hike at the regular FOMC meeting in June.

The 10-year U.S. Treasury yield, which once again broke through the 3% level in the morning and reached its highest level since 2018, calmed down after Chairman Powell’s meeting and fell below 2.95%, which also worked as a positive for the stock market. It is also analyzed that the fact that Chairman Powell was confident that a “soft landing is highly likely” while denying some prospects of a recession also had a positive effect on investor sentiment.

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