Last week, the US Federal Reserve raised its key interest rate to 0.25 percent. The interest rate hike has been announced since the beginning of the year after US inflation reached its highest level in more than 40 years.
On Monday, less than a week after raising rates, Central Bank Governor Jerome Powell said he considered inflation “too high” in a speech to the National Association for Business Economics, according to CNBC.
“We will take the necessary steps to ensure that price stability returns,” Powell said, noting that more drastic measures may be needed.
Bloomberg reported that market expectations for US interest rates rose on Monday afternoon in Norwegian time in relation to today’s data from Powell.
After the mixed opening of the major indices on Wall Street, Powell’s comments sent the stock markets lower. The broad Standard & Poor’s 500 Index fell 0.04 percent, the Dow Jones Industrial Average fell 0.58 percent, and the Nasdaq Technology Index fell 0.4 percent.
In a press release after Wednesday’s rate hike, the central bank wrote that it expects to do so with rate increases in the coming months and that it may be appropriate to raise the key rate by more than 25 basis points at time.
The rate hike was the first in three years by the Federal Reserve, after it recently ended its supportive purchases of securities. Since the financial crisis, the Federal Reserve has supported the purchase of government bonds and mortgage bonds with the aim of supporting the economy through financial markets.
The support purchases led to a sharp increase in the central bank’s balance sheet, which has more than doubled since 2020. The Fed has also indicated previously that it may be appropriate to start shrinking the balance sheet by selling net government bonds in order to normalize monetary policy. Powell indicated last week that this process could begin as soon as May, but no decision has yet been made, CNBC wrote.
The ten-year-old child rises
On Monday, the interest rate on US government debt with a ten-year maturity, popularly called the “ten-year”, will rise from about 2.15 per cent to more than 2.3 per cent. The ten-year-old is often referred to as the “world’s hottest interest rate” because it is a reference to many interest rates, but also other financial variables, around the world.
Higher long-term interest rates are often a bad sign for growth companies. Growth share is priced higher than earnings indicate, because investors anticipate growth in the future, often several years in advance. Thus, a rise in the rate of interest in the future will reduce the profits of the developing firms in the long run.
The war in Ukraine continues to cause high volatility in oil prices. After falling at the end of last week, the price of oil rose again. A barrel of North Sea oil burned on Monday, a reference price for global oil trade, and was traded at about $113 a barrel.
The Russian invasion of Ukraine caused disruptions over oil supplies. The International Energy Agency on Friday proposed a series of emergency measures to cut oil consumption. The IEA’s proposals included limiting speed limits for vehicles, working from home up to three days a week, and avoiding business travel. CNBC writes.(Terms)Copyright Dagens Næringsliv AS and/or our suppliers. We would like you to share our cases using a link that leads directly to our pages. All or part of the Content may not be copied or otherwise used with written permission or as permitted by law. For additional terms look here.
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