Markets plunge after Fed raises rates another 0.75% and announces further rate hikes

Despite raising interest rates by 75 basis points for the fourth consecutive time, the Federal Reserve considers that it's still not time to put an end to these increases. Markets fell sharply following the Bank's chairman, Jerome Powell’s announcement.

During the press conference where he announced the agency's decision, Powell warned that there is still room to go before stopping the hikes: "It is very premature to be thinking about pausing. Incoming data since our last meeting suggests that the ultimate level of interest rates will be higher than previously expected."

"Sufficiently restrictive level"

Therefore, according to Powell, "We think that we have a ways to go, we have some ground to cover with interest rates before we get to that level of interest rates that we think is sufficiently restrictive."

However, the Fed chairman explained the possibility that the pace of money price growth could moderate "as early as the next meeting or the one after that."

"Extreme pain" in the face of inflation

Powell acknowledged that the persistent rise in prices is forcing him to go further than they had planned. "There is no sense that inflation is coming down," so "they do suggest to me that we may move to a higher level than we thought at the September meeting," he said. Furthermore, he insisted again that low inflation is better in the long term, despite the suffering it brings in the short and intermediate term.

Veronique de Rugy, an economist at George Mason University's Mercatus Center, spoke to Bloomberg and said: "I don’t think there was ever going to be another option other than creating a recession. There is no way to get out of this high inflation without extreme pain."

Large stock market losses

The announcement did not sit well with the main stock market indicators. After starting the day with gains, Powell's appearance triggered sharp declines in the markets. According to Bloomberg, S&P 500 suffered its worst drop since January 2021 following a Federal Reserve announcement. The NASDAQ, meanwhile, dropped 3.4% and the Dow Jones industrials closed 500 points lower.