Global Stocks Fall After Fed Steps Up Inflation Fight
BEIJING (AP) -- Global stock markets sank Thursday after the Federal Reserve delivered another big interest rate hike to cool galloping inflation and raised its outlook for more increases.
London and Frankfurt declined after Switzerland's central bank also raised its benchmark lending rate by its biggest margin to date.
Shanghai, Tokyo and Hong Kong declined. The dollar rose to 146 yen -- a 24-year low -- after the Bank of Japan left its key lending rate unchanged, and then fell to about 142 yen after what a top finance official said was a rare intervention by the central bank.
Masato Kanda, the vice minister of finance for international affairs, confirmed the intervention. However, it was unclear exactly what form it took, and the BOJ does not usually announce such moves itself.
Earlier Thursday, the BOJ left its benchmark lending rate at minus 0.1% and its ultra-loose monetary policy unchanged, underscoring its divergence with the U.S. strategy of higher interest rates, which have led investors to buy the dollar.
The Japanese central bank has maintained ultra-low interest rates for years in hopes of stimulating business activity and fighting deflation.
Wall Street's benchmark S&P 500 index fell 1.7% to a two-month low after the Fed raised its key lending rate Wednesday by 0.75 percentage points to a 14-year high. The Fed indicated it expects that rate to be a full percentage point higher by year's end than it did three months ago.
"The Fed still managed to out-hawk the markets," Anna Stupnytska of Fidelity International said in a report. "Economic strength and a hot labor market point to a limited trade-off -- at least for the time being -- between growth and inflation."
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The Swiss National Bank raised its benchmark rate by 0.75 percentage points and said it couldn't rule out more hikes "to ensure price stability."
In early trading, the FTSE 100 in London lost 0.5% to 7,204.57 and Frankfurt's DAX sank 0.5% to 12,705.94. The CAC 40 in Paris fell 0.7% to 5,989.63.
On Wall Street, the S&P 500 future was up 0.1% and that for the Dow Jones Industrial Average gained 0.3%.
On Wednesday, the Dow fell 1.7% and the Nasdaq composite lost 1.8%.
In Asia, the Shanghai Composite Index sank 0.3% to 3,108.90 and the Nikkei 225 in Tokyo slid 0.6% to 27,153.83. Hong Kong's Hang Seng tumbled 1.7% to 18,134.63.
South Korea's Kospi sank 0.6% to2,332.31 and India's Sensex opened down 0.2% at 59,304.34.
New Zealand, Bangkok and Jakarta rose while Singapore declined.
The Fed and central banks in Europe and Asia are raising rates to slow economic growth and cool inflation that is at multi-decade highs.
Traders worry they might derail global economic growth. Fed officials acknowledge the possibility such aggressive rate hikes might bring on a recession but say inflation must be brought under control. They point to a relatively strong U.S. job market as evidence the economy can tolerate higher borrowing costs.
"The Fed's new economic projections highlight it will tolerate a recession to bring inflation down," said Gregory Daco of EY Parthenon in a report.
The yield on the 2-year Treasury, or the difference between the market price and the payout if held to maturity, rose to 4.02% on Wednesday from 3.97% late Tuesday. It was trading at its highest level since 2007.
The yield on the 10-year Treasury, which influences mortgage rates, fell to 3.52% from 3.56%.
The major Wall Street indexes are on pace for their fifth weekly loss in six weeks.
Fed chair Jerome Powell stressed his resolve to lift rates high enough to drive inflation back toward the central bank's 2% goal. Powell said the Fed has just started to get to that level with this most recent increase.
The U.S. central bank lifted its benchmark rate, which affects many consumer and business loans, to a range of 3% to 3.25%. That is the fifth rate hike this year and up from zero at the start of the year.
The Fed released a forecast known as a "dot plot" that showed it expects its benchmark rate to be 4.4% by year's end, a full point higher than envisioned in June.
U.S. consumer prices rose 8.3% in August. That was down from July's 9.1% peak, but core inflation, which strips out volatile food and energy prices to give a clearer picture of the trend, rose to 0.6% over the previous month, up from July's 0.3% increase.
Central bankers in Britain and Norway are due to report on whether they also will raise rates again. Sweden surprised economists this week with a full-point hike.
The global economy also has been roiled by Russia's invasion of Ukraine, which pushed up prices of oil, wheat and other commodities.
In energy markets, benchmark U.S. crude gained $1.10 to $84.06 per barrel in electronic trading on the New York mercantile Exchange. The contract fell $1 to $82.94 on Wednesday. Brent crude, the price basis for international oil trading, advanced $1.09 to $90.92 per barrel in London. It lost 79 cents the previous session to $89.83.
The dollar gained to 143.35 yen from Wednesday's 143.46 yen. The euro fell to 98.67 cents from 99.09 cents.