Mixed Reactions As Fed Hikes Interest Rates, BOJ Intervenes, And Equities Slump

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Thursday, September 22, is a busy day for most markets as the United States Federal Reserve increased interest rates to 75 basis points (bps) after a brief wait.

Fed Imposes 75 Basis Points as Interest Soars

The equity market woke up to the news that the Fed has pushed the interest rate to 75 basis points. The move implies an uncertain forecast for future rate hikes. In addition, it seems there will be no rate cut for 2023 as industry experts envision another increase in the coming year.

Meanwhile, the latest increase is a basis point higher than the various markets predicted. This results in a sudden crash in the value of risky assets. The Fed interest rate hike implies it is committed to further hikes to battle inflation.

The regulator attempts to curb the rising inflation—the highest in over two decades. The recent hike is the third consecutive increase in about two months.

Meanwhile, Fed Chairman Jerome Powell maintained his earlier stance on the hike. According to Powell, the Fed strongly commits to lowering the interest rate to the lowest minimum. Powell added that the Fed would keep doing what it does until it achieves a 2% drop.

It is worth noting that the increase began in March from the point of near-zero. This marks the beginning of the most aggressive action the Fed has ever taken to combat inflation.

Bank of Japan Intervenes in Forex Debacle to Protect Yen

Japan’s policymakers have waded into the forex issues threatening the stability of its currency. The Yen has been battered following its worst performance in recent years. As a result, the central bank has intervened to maintain low-interest rates to help shore up the Yen’s dwindling value.

Masato Kanda, the Vice Finance Minister, noted that the central bank had taken strong action against the rout. Moreover, the U.S. dollar has extended its decline against the Yen and was down by more than 2% after the announcement of the intervention.

The forex market was expecting some intervention for some time, said Stuart Cole of London-based Equity Capital.

However, Equity Capital’s lead analyst noted that interventions like this are difficult to succeed at. He believes that the intervention will only provide temporary relief for the Yen.

The Bank of Japan’s decision to support the Yen comes amid the country’s slow-paced economic recovery. The central bank noted that using monetary tightening policies could rein in rising inflation for the country.

In another development, the equity market is in turmoil again following the Fed’s chair’s latest remarks. After the Fed meeting kicked off, the industry has struggled to maintain its modest stability due to uncertainties regarding the outcome of the discussions.

However, stocks have been in a sell-off pattern since last month, as the previous data shows how the market performs.

Meanwhile, the Fed’s decision to continue raising interest rates will present a litmus test for the equity market.

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