iNDICA NEWS BUREAU-
The US Federal Reserve raised key rates by 75 basis points on Wednesday, the fourth such hike by it this year to curtail rising inflation.
The latest hike in interest rates is likely to have a major impact on Indian markets when they will open for trading on Thursday morning.
Key indices may witness a free fall, quite like on September 21 this year, when the US Fed had last hiked key rates.
The already weakened rupee, too, is likely to be impacted.
While the rupee has crossed the 83-mark against the US dollar on quite a few occasions this week in anticipation of the US Fed announcing a hike in rates, now that it has actually happened, the domestic currency may weaken further.
A weak rupee widens the current account deficit and makes imports dearer.
Interestingly, while this is the fourth time the US Fed has hiked rates, even the RBI has hiked repo rates four times this year.
US Fed’s rate hike actions have a direct bearing on Indian markets and the rupee, as higher interest rates in the US take the sheen off Indian equities, weaning away foreign investors, say market analysts.
The Fed Chairman, Jerome Powell was quoted as saying by reports that the bank is firmly committed to lowering inflation.
The aggressive rate hike by the Federal Reserve will put further pressure on the stock markets globally, especially on rising economies like India.
Every rate hike by the US Federal Reserve forces American investors to pull out funds from emerging markets.
The world’s biggest economy — all of $23 trillion — is clearly in strife, battling as it is with the twin imperatives of growth and inflation. Wednesday’s rate hike moved the interest regime to its highest since 2008. President Joe Biden, imperilled in the mid-terms, is also talking of jobs and the economy.
The central bank is boosting rates to curb inflation, which hovers near a 40-year high. But the higher rates risk pushing the economy into a recession. At a news conference, Fed Chair Jerome Powell said the Fed could slow the pace of hikes as soon as next month.
“That time is coming and it may come as soon as the next meeting or the one after that,” Powell said, USA Today reported.
But he added the Fed isn’t close to pausing its rate hike campaign and needs to boost rates a good bit more to reach a level that’s “sufficiently restrictive” to lower inflation to the Fed’s two per cent target. The concern, he said, is that inflation could become “entrenched” in the expectations of consumers and businesses and the Fed must move decisively to head off such a dynamic.
“The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 per cent over time,” the Fed statement said.
The Fed added: “In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation as well as economic and financial developments.”
America is obsessed with rising unemployment, spiking inflation and weak growth. A CNN POLL showed that as many as 75% believe that the US economy is in recession although last quarter numbers bumped up to 2.6%.
The continuous hikes in interest rates to combat surging inflation means that credit card rates rates are in the stratosphere at 18.7% while mortgage rates a blow out seven per cent.
Talking to Americans on the main street inflation and the economy are key issues as Biden himself focuses on a withering economy.
GOP edge over Democrats in the mid-term voting for Congress is a poor 51% to 47% for Democrats for whites only subset.
The new CNN Poll also shows that as many as 74% reckon things are going badly in the US while a hefty 51% are concerned over the economy and rising inflation. Across the board, Americans are expected to vote on these issues.
US Fed rate hike will likely impact Indian markets, rupee
