June 13, 2024

Poor expectations with US interest rates reduce stocks

3 min read
Piora da expectativa com os juros nos EUA derruba bolsas
Poor expectations with US interest rates reduce stocks

The market is now expecting a higher interest rate hike in the US, which is bad for stocks. On Monday (13) Ipovespa recorded a decline of 2.3% and Nasdaq 4.7%.

The week started with a strong fall in markets in Brazil and abroad. On Monday (13), Ibovespa closed at 102,598 points, down 2.73%. In the US, the S&P 500 was down 3.9% and the Nasdaq was down 4.7%. With this fall, the S&P 500 has clearly entered the bear market. As an American commentator wrote, bears roam freely on Wall Street.

The rough movement, which started in Asia from Sunday (12) to Monday, has dampened investor expectations. Monetary Policy Committee Meetings this Tuesday (கோபோம்) And the Federal Reserve (Fed), the US Federal Reserve. Until the start of trading on Monday, the outcome of both meetings was expected to be the same: a 0.5 per cent rise in interest rates. In addition, Fed funds will increase their reference interest rate to 1.25% per annum from the current 0.75%, taking into account the band’s base (0.5 percentage points).

+ Asian stocks close without a signal, with a decline in Tokyo and Shanghai gains

However, the expectations of US investors have changed and are worse. Last weekend there was a very small minority who forecast a 0.75 percentage point increase in US interest rates. Federal funds will grow by 0.75% to 1.50% per annum. The difference seems small when you think of 13.25% per cell year. However, if confirmed, it could mean a drastic change in expectations.

Ben Bernanke, who was chairman of the central bank from 2006 to 2014, had to deal with the subprime crisis. The solution that the US Federal Reserve found at the time was to avoid a recurrence of the 1929 crisis, which flooded the money market, shrinking the central bank’s cash flow during the crisis, and deepening depression. The idea of ​​the event in Washington was that Bernanke inherited a problem that had been dormant for nearly 20 years during Alan Greenspan’s tenure. Whatever solution is found, Bernanke is responsible.

Jerome Powell, now chairman of the central bank, faces a similar challenge. The risk of a recession was small, but he had to face the highest inflation in the United States in four decades. The solution could be to adopt a transparent recessionary monetary policy and force the central bank to tighten the game on interest rates.

This is what brought down the trading sessions on Monday. None of this will happen, and at a scheduled press conference on Wednesday (15) the central bank will announce the expected 0.5 percentage point increase, which will make it harder for the next meeting. However, despite what is really happening, investor expectations about the performance of the central bank have changed for the worse.

Interest rates may be higher than expected. The meeting only confirms what has been widely expected in recent weeks by members of the Federal Open Market Committee (FOMC), American Gobom. At this point, the expectations for the upcoming meetings have become more important than the facts. The result, of course, is an increase in the structure of instability.

Leave a Reply

Your email address will not be published. Required fields are marked *