There will be no pause for raising key interest rates, the Federal Reserve’s final answer
The Suisse Credit Bank issues were resolved by a last-minute deal. However, the U.S. Federal Reserve decided to keep rising key interest rates. By the opening reading hours, the Wall Street main indexes had jumped higher by an increased average estimated at 1% of all indexes.
However, at 13:30 ET, most Wall Street indexes were revised downward and declined slightly.
The S&P 500 benchmark was down from 0.89% to 0.2%, the Nasdaq rose to 0.5%, and the Dow fell sharply from 1.12% to 0.01%.
The U.S. monetary policymakers decide to lift the central bank’s interest rates by small amounts, a quarter basis point according to recent reports. The stress results from the misfortune have had the largest impact on the Dow Jones index. Especially, when the stocks were already facing unstable corporate earnings in the past quarter.
Investors braced for the Federal Reserve to pause increasing its key interest rates this month. Because higher interest rates and banking liquidity issues usually add fuel to recession flames. Yet, the FED officials have decided that the U.S. will keep combating the high increase in consumer-predicted prices. Only this time, the U.S. will be extra cautious in terms of market risk and recession possibilities.
Rising interest rates in small amounts might not cause a recession, but with the current banking shockwave, the turbulence might cause a huge fall in bank lending.
FED officials noted that the U.S. will try to avoid a banking crisis while combating high inflation increases.
Torsten Sloke, a chief economist at investment manager Apolo, has commented on the recent banking crisis and the FED decision. Torsten says that the U.S. is tightening its financial condition to the point that the risk of a sharper slowdown in the economy has increased.
The banking sector is currently dealing with significant stress, which will result in tighter credit conditions. Meaning lending and financial condition will decline, whereas market risks will increase at the same time.
Recession probabilities are at a critical point, higher than COVID and the war combined.
Meanwhile, in the oil business, the U.S. crude benchmark reportedly jumped by more than 5% since the start of the week. The West Texas Intermediate rose by 1.87%, to $70.7 per barrel. Brent oil jumped by 1.95% to $76.9 per barrel.
Including today, oil prices have been rising for the third day in a row, totaling a more than 5% increase.
On the other hand, low-interest rates have weakened the U.S. dollar index. The dollar index declined by 0.9% to its lowest level of the month at 101.98.
Experts see that the tightened financial condition harms the U.S. dollar benchmark. Especially when there is a probability of a slowdown in economic activities due to low liquidity and a credit crisis.
In terms of the market’s future outlook, the odds are against the U.S. economy. With small interest rate hikes and effective solutions in the banking sector, the U.S. might overcome the challenges.