A rebound in stocks and US equity futures fizzled Thursday, hampered by the prospect of a sustained campaign of Federal Reserve interest-rate hikes to get runaway inflation under control.
S&P 500 futures fell 2.07%; Nasdaq 100 futures shed 2.55%.
Markets had initially brightened on Fed Chair Jerome Powell’s comment that super-sized hikes will be rare after the central bank lifted borrowing costs the most since 1994. Precarious economic reality later hit sentiment again.
Powell signaled another big hike in July after the Fed raised rates by three-quarters of a percentage point, but added “today’s 75 basis-point increase is an unusually large one and I do not expect moves of this size to be common.”
The dollar ticked up as the relief rally ebbed, while the yen fell. Cryptocurrencies -- emblematic of market stress due to tighter financial conditions -- came off session highs.
Wednesday’s decision took the target range for the federal funds rate to 1.5% to 1.75%. Officials projected 3.4% by year-end and 3.8% by the end of 2023. The Fed also reiterated it will shrink its balance sheet by $47.5 billion a month -- a move that took effect June 1 -- stepping up to $95 billion in September.
“75 basis points is a solid showing that will, all else being equal, serve to improve Fed credibility and leave monetary policy slightly less behind the inflationary curve,” Benjamin Jeffery and Ian Lyngen, strategists at BMO Capital Markets, wrote in a note. “The response in risk assets will ultimately define the extent to which the Fed will be able to normalize monetary policy.”
Fears of an environment of sharply slower economic growth, elevated price pressures and rising rates continue to shadow markets. Next up is the Bank of England, which is set to deliver a fifth-straight rate hike.
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