Wall Street opens lower as global central banks hike rates
THIS IS A BREAKING NEWS UPDATE. AP’s previous story follows below.
U.S. futures rose slightly on Thursday as central banks in Europe and Asia tightened monetary policies after another sharp interest rate hike from the U.S. Federal Reserve this week in what is becoming a global effort to calm spiraling inflation.
Dow Jones Industrials futures rose 0.2% and S&P 500 futures rose 0.1%.
Wall Street’s benchmark S&P 500 index fell 1.7% to a two-month low after the Fed raised its key rate on Wednesday by 0.75 percentage points to a 14-year high. The Fed has indicated that it expects this rate to be a full percentage point higher by the end of the year than it was three months ago.
“The Fed still managed to outpace the markets,” Fidelity International’s Anna Stupnytska said in a report. “Economic strength and a boiling labor market point to a limited trade-off – at least for now – between growth and inflation.”
London and Frankfurt fell after the Swiss central bank also raised its benchmark lending rate by its largest margin yet – 0.75 percentage points – and said it could not rule out further hikes” to ensure price stability. The Bank of England raised its rate by half a point, as did the central bank of the Philippines. Norway also raised its benchmark rate.
Sweden caught nearly all economists off guard this week with a full one point rise.
The Fed and central banks in Europe and Asia are raising rates to slow economic growth and calm inflation, which is at its highest in several decades.
Traders fear derailing global economic growth. Fed officials acknowledge the possibility that such aggressive rate hikes could lead to a recession, but say inflation needs to be brought under control. They indicate that the US labor market is relatively strong as evidence that the economy can tolerate higher borrowing costs.
“The Fed’s new economic projections underscore that it will tolerate a recession to bring inflation down,” EY Parthenon’s Gregory Daco said in a report.
In Asia, the Shanghai Composite Index fell 0.3% to 3,108.90 and the Nikkei 225 in Tokyo slipped 0.6% to 27,153.83. Hong Kong’s Hang Seng fell 1.7% to 18,134.63.
South Korea’s Kospi fell 0.6% to 2,332.31 and India’s Sensex opened down 0.2% to 59,304.34.
New Zealand, Bangkok and Jakarta increased while Singapore decreased.
The yield on the 2-year Treasury, or the difference between the market price and the payout if held to maturity, rose to 4.09% on Wednesday from 3.97% on Tuesday evening. It was trading at its highest level since 2007.
The 10-year Treasury yield, which influences mortgage rates, fell to 3.55% from 3.56%.
Fed Chairman Jerome Powell underscored his determination to raise rates high enough to bring inflation back toward the central bank’s 2% target. Powell said the Fed had just started to hit that level with this most recent increase.
The US central bank raised its benchmark rate, which affects many consumer and business loans, to a range of 3% to 3.25%. This is the fifth rate hike this year and zero at the start of the year.
The Fed released a forecast known as the “dot plot” that showed it expects its benchmark rate to be 4.4% by the end of the year, one point higher than expected in June.
Consumer prices in the United States rose 8.3% in August. That was down from July’s 9.1% peak, but core inflation, which excludes volatility in food and energy prices to give a clearer picture of the trend, has eased. to 0.6% from the previous month, compared to an increase of 0.3% in July.
The global economy was also shaken by Russia’s invasion of Ukraine, which drove up the prices of oil, wheat and other commodities.
In energy markets, benchmark U.S. crude gained 89 cents to $83.83 a 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 trade, advanced 86 cents to $90.69 a barrel in London. It was down 79 cents the previous session at $89.83.
The dollar fell to 141.42 yen from 143.46 yen on Wednesday.
The yen fell to its lowest level in 24 years against the dollar after Japan’s central bank left its key rate unchanged, then rose following the bank’s intervention in the foreign exchange market.
The euro fell to 98.63 cents from 99.09 cents.
Wall Street’s major indexes are poised for their fifth weekly loss in six weeks.
On Wednesday, the Dow fell 1.7% and the Nasdaq composite lost 1.8%.
McDonald’s reported from Beijing; Ott reported from Washington.