Markets in Asia and Europe experienced declines on Thursday as traders weighed the possibility of further interest rate hikes from central banks in an attempt to control persistently high inflation. Federal Reserve Chair Jerome Powell’s warning to US lawmakers that it “may make sense” to continue raising rates dashed hopes of an approaching end to the tightening cycle. The Bank of England also faced pressure to announce a bigger-than-expected increase after the UK’s inflation remained unchanged at 8.7 percent in May, defying forecasts.
Last week, the European Central Bank, Canada, and Australia increased interest rates, with Switzerland following suit on Thursday. Norway is also expected to raise rates later in the day. Turkey is considering a reversal of President Recep Tayyip Erdogan’s unconventional economic policies and may significantly increase interest rates to combat soaring inflation and stabilize the struggling lira.
Speculation had been growing that the Fed was nearing the end of its tightening cycle, as it held rates steady last week for the first time since March 2022 due to lower price rises and a softer job market. However, Powell’s congressional testimony on Wednesday indicated that a more moderate pace of rate hikes might be appropriate despite progress in reducing inflation. He stated, “Given how far we’ve come, it may make sense to move rates higher but to do so at a more moderate pace.” Powell also acknowledged that inflation, although dropping to 4.0 percent in the previous month from 4.9 percent in April, has been persistently higher than expected. He suggested that two more rate hikes this year was a reasonable estimate.
Traders anticipate a 75 percent probability of a 25 basis point rate hike at the Fed’s July meeting. Concerns about an impending recession have resurfaced due to the expected rate increases. OANDA’s Edward Moya commented, “The Fed is clearly not nearing the end of its tightening cycle, and if other central banks seem poised to deliver more than a couple rate hikes, that might make it easier for the Fed to remain aggressive with tightening. Powell’s statement that lowering inflation has a long way to go could very well mean that they won’t stop until the fall.”
Wall Street’s three main indexes declined for a third consecutive session, and Asian markets followed suit on Thursday. Tokyo, Sydney, Singapore, Manila, Wellington, Mumbai, Bangkok, and Jakarta experienced losses, while Seoul saw a slight gain. London, Paris, and Frankfurt also saw significant declines upon opening. Hong Kong and Shanghai markets were closed. This week, Asian markets have reversed their previous gains due to concerns that the tightening cycle is not ending as expected, compounded by a lack of concrete stimulus measures from China. Reduced confidence resulted from the smaller-than-anticipated reduction in the main benchmark rate this week. Analysts are now focusing on an upcoming meeting led by President Xi Jinping next month.
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Omprakash Tiwary is a business writer who delves into the intricacies of the corporate world. With a focus on finance and economic landscape. He offers readers valuable insights into market trends, entrepreneurship, and economic developments.