Stock Prices Fall Following Federal Reserve’s Hawkish Position

The US stock market had a hard time on Thursday as prices fell and the short-term government bonds increased in price to the highest point they had been in the last 23 months, following the Fed’s plans to stick with raising interest rates by March and promising tighter policies to stave off high inflation in the country.

Other Markets

In the early hours of trading, the German DAX declined by 1.21% while Euro’s STOXX lost 0.5%.

On Wednesday, Wall Street shares had gone down and investors prepared for a lower start the following day but they were out of the list of today’s low futures by 9:30 GMT.

In the Asian market, on the other hand, share prices fell to their lowest point in almost 15 months.

The Federal Reserve gave a policy update on Wednesday after its two-day meeting. It was indicated that there is going to be an increase in interest rates by March, as many have been expecting, and confirmed that it will stop buying bonds in the same month it significantly reduces its asset holdings.

However, the Chairman of the Federal Reserves, Jerome Powell, announced at a subsequent news brief that the current level of inflation has shot beyond the Reserve’s long-term goals and supply chain problems may be a bit more serious than earlier anticipated.

An analyst with Rabobank, Foley Jane, said the effect of cheap money flowing around is that it has made available an illusory safety blanket from perceived bad news. He said when the blanket is taken away, the exposure will send investors into a frenzy and it will cause higher volatility in the asset market.

Eastern Europe in View

Causing more fright for investors are increasing worries about the escalating situation between Ukraine and Russia. Concerns over a harsh energy market have also intensified owing to Russia’s centrality in the supply chain. Oil prices too are a concern if the energy fear continues as it is at risk of rising to many-year highs.

The Federal Reserve fund Futures revealed that traders were pricing in up to five interest rate hikes before the end of the year after they had priced in four.

Expecting the Federal Reserve’s hawkish policy had sent the sensitive two-year yield to a height of 1.208%, a level it last attained in February 2020. The ten-year yield benchmark remained steady in trade at 1.851% haven got to a 1.88% height on Wednesday.