US stocks fall on Federal Reserve guidelines
US markets ended sharply lower after the Federal Reserve raised rates by 0.75% to a range of 3%-3.25% and warned that several hikes were ahead.
The Dow Jones Industrial Average and S&P 500 both lost 1.7% and the Nasdaq 1.8%, as investors also consumed the Fed’s lower growth forecast for the US economy. The projections now show GDP growth of 0.2% this year, compared to the June estimate of 1.7%.
Average interest rates are expected to hit 4.4% by the end of the year as Federal Reserve Chairman Jerome Powell warns there is no painless way to get on top of inflation.
Attention is now shifting to the Bank of England, where policymakers are under pressure to increase by 0.75% to 2.5%. It meets with sterling at a 37-year low, close to $1.12.
Michael Hewson, chief market analyst at CMC Markets said: “It seems almost ridiculous to talk about a 0.5% appreciation of the pound at current levels, with the potential for even bigger declines in the coming weeks.
“The Bank of England will likely need to go at least 0.75% today to curb the inflationary impulse from a weaker exchange rate, as well as the net effect of the government’s fiscal measures to ease the burden on consumers.”
Hewson expects the FTSE 100 index to open 60 points lower at 7177 as European markets follow Wall Street’s lead.
The FTSE 100 and FTSE 250 both rose yesterday, with homebuilders higher on speculation about a cut in stamp duties in Friday’s mini-budget by Chancellor Kwasi Kwarteng.