August 16, 2022

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The Fed opened a new triple increase - Wall Street rose

The Fed opened a new triple increase – Wall Street rose

When the stock market opened on Wall Street, the three major indices rose slightly. The S&P 500 rose 0.11 percent and the Dow Jones rose 0.1 percent in the opening minutes, but in the following hours the indicators were marked by uncertainty and vacillated between ups and downs.

At 20:00 Norway time, the US Federal Reserve presented the minutes of the previous monetary policy meeting. This first sent the indicators in a slight uptrend, before falling back into the red.

Just over half an hour after the interest rate report was published, the mood shifted again. This is what it looked like for the three major indices when the trading day ended on Wednesday:

  • The Dow Jones Industrial Average rose 0.22 percent.
  • The broad S&P 500 index rose 0.36 percent.
  • The technology-heavy Nasdaq index rose 0.35 percent.

Unlocks for another triple boost

On Wednesday night Norwegian time, the US Federal Reserve released the minutes of its previous monetary policy meeting. This was the meeting at which the central bank conducted a so-called tripartite rate hike of 0.75 percentage points.

The central bank usually raises the interest rate by 0.25 percentage points each time. The main policy rate in the US is now in a range between 1.5 and 1.75 per cent.

The last minutes from the June meeting state that the committee supported raising the key interest rate either 0.50 percentage point or 0.75 percentage point at the July rate meeting. Many members of the committee were concerned that inflation could remain high if the population did not trust that higher interest rates would bring down accelerated inflation.

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“Members agreed that the economic outlook justifies a restrictive stance in monetary policy, and acknowledged the possibility that a more restrictive stance would be appropriate if elevated inflationary pressures persist,” the June report said.

Interest rate hike last month It was the largest since 1994, but it was to be expected. Even a few days before the monetary policy meeting, an increase of 0.5 percentage point was expected, but after, among other things, an article in the Wall Street Journal It only raised almost all the estimates of major US investment banks to raise the interest rate by three times.

At the same time, the committee acknowledged that a rapid rise in interest rates could slow economic growth in the short term, but the committee believed that interest rates should rise to slow inflation.

Outdated

However, Wall Street’s main indexes rose on Wednesday. Chief Economist Marius Gunsholt Hof at Handelsbanken notes that the market looks a bit off during the Fed minutes.

– The actual reaction to the record is that it is tough, but this is also a bit outdated report regarding the composition of the wine we received in the meantime. It indicates that growth is slowing further and inflation is slowing down earlier than previously expected. This means that the market is not buying into the interest rate forecast that the Fed made at the previous meeting.

Hof notes that the Fed estimates that interest rates will peak at the end of next year, while market rates will peak in the first quarter of 2023. After that, interest rates are expected to be lowered, Hof says.

The rate reaction there was with a slight increase, but we should remember that it was lowered a little bit from the top in mid-June, says Hof.

The interest rate on government bonds with a maturity of ten years, also called ten years, rises after the announcement of the interest rate and is now at 2.96 percent. The two-year government bond yield also rose on Wednesday.

In mid-June, the ten-year-old approached 3.5 percent.

Fears of economic recession and low oil prices

Major US indexes closed mixed on Tuesday, after a sharp decline at the end of last week. The Nasdaq Technology Index rose 1.75 percent, the broad Standard & Poor’s 500 Index rose 0.16 percent, while the Dow Jones Industrial Average fell 0.42 percent.

So far this year, the Nasdaq is down more than 28 percent, the Standard & Poor’s is down 20 percent, and the Dow is down about 15 percent, after inflation and interest rate fears have swept the markets in recent months.

But lately, fears of a recession, especially in the United States, have gripped the public mood. On Tuesday, oil prices fell sharply and surprisingly. At worst, the price of oil fell by 10% within hours.

On Wednesday, the price of a barrel of North Sea oil burned about 104 dollars a barrel and stabilized, but just before the opening of the American Stock Exchange, the price of oil fell sharply. At the time of writing, a barrel of Brent North Sea spot oil was trading at just over $100 a barrel. The price of oil has fallen more than 20 percent since the peak level at the beginning of March.

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