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Global markets volatile as Fed launches action against inflation

Global markets volatile as Fed launches action against inflation

The U.S. central bank, the Federal Reserve of the United States, has reportedly signaled that it will be increasing interest rates in order to control the surge in inflation, in accordance to the statements made during a recent news conference by the Federal Reserve chair, Jerome Powell.

Following the announcement, global stock markets values became volatile with the British pound dropping sharply against the US dollar.

Financial markets, which had been relying on the stimulus cash for the last two years, have been put on notice that interest rates will be hiked from March onwards in a sustained manner.

The central bank also confirmed that its bond purchase program will end in March as well, diverting attention from COVID support to controlling the price surge rate.

In December, the U.S. inflation rate, at 7%, was at its highest level in 40 years.

Inflation has surged globally as well, including in the UK, due to the severe spikes in energy prices and disruption in the supply chains.

Analysts have warned that stock market values might continue being volatile for a long period, initially hit by the Federal Reserve’s remarks causing the fed funds future to price in more than four rate hikes for 2022.

AJ Bell, an investment platform, has reported that it expects four rate rises by the Bank of England this year, with a 95% chance of a 0.5% hike next week.

US futures were down by over 1.5% to cover up late losses after the news conference had concluded.

The International Monetary Fund (IMF) has warned that emerging economies will be affected indirectly by the increasing US rates, as the cost of their debt service will rise as per the dollar rate.

Japan’s Nikkei saw an overnight plunge of 3%, reaching a 15-month low, while European markets also slid by 3%, while FTSE 100 saw an initial decline of 1% with similar dips in Spain, Germany, France, and Italy.

However, European bank shares recovered quickly as the day progressed, with the expectation that earnings of lenders will increase with high interest rates.

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Sunil Jha

Sunil Jha has been a part of the content industry for close to two years. Having previously worked as a voice over artist and sportswriter, he now focuses on writing articles for, across a slew of topics, ranging from technology to trade and finance. With a business-oriented educational background, Sunil brings forth the expertise of deep-dive research and a strategic approach in his write ups.