ASX down, Wall Street slumps as Federal Reserve keeps raising rates aggressively

The Australian share market has fallen sharply at the open, after Wall Street stocks tumbled in response to talk of further interest rate rises to curb inflation. 

The ASX 200 fell 2 per cent to 6,949, while the broader All Ordinaries dropped 2 per cent to 7,040.

All 11 sectors were lower at 10.30am AEDT, with energy the biggest loser. 

Stocks with the most gains were Perpetual Limited, The A2 Milk Company, Downer EDI Limited and New Hope Corporation.

Companies with the biggest losses were Ramelius Resources, Silver Lake Resources, Domino’s Pizza, Block Inc, and Persues Mining.

US stocks hit by interest rate hike

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US Federal Reserve lifts interest rates to highest level since 2008

The US Federal Reserve chair has signalled rate rises may soon slow, after delivering another 0.75-of-a-percentage-point rise, but has given no indication as to when they will stop, sending Wall Street tumbling.

The dual message left open the possibility the US central bank might raise rates in smaller increments in the future, ending its sequence of three-quarters-of-a-percentage-point hikes as soon as December.

Fed chair Jerome Powell, speaking at a news conference after the end of the central bank’s latest policy meeting, said even if policymakers scaled back future increases they were still undecided about just how high rates would need to rise to curb inflation and were determined to “stay the course until the job’s done”.

Regardless of how fast the Fed moves, Mr Powell said, “there’s some ground to cover” for the target federal funds rate to reach a “sufficiently restrictive” level that will slow inflation, adding that the final destination was “very uncertain … we’re going to find it over time”.

“The question of when to moderate the pace of increases is much less important than the question of how high … and how long to keep monetary policy restrictive,” he said, adding that it was “very premature” to discuss when the Fed might pause its increases.

Major US stock indices spiked after the release of the Fed’s statement, which promised to take economic risks more clearly into account in deciding the size of any further rate increases, but erased those gains as Mr Powell spoke, ending the day sharply lower.

The S&P 500 index slumped 2.5 per cent, the tech-heavy Nasdaq Composite tumbled 3.4 per cent and the blue chip Dow Jones Industrial Average fell a more modest 1.6 per cent.

Bill Nelson, a former top Fed staffer who is now chief economist at the Bank Policy Institute, said ahead of Mr Powell’s news conference that the Fed’s policy statement appeared to set the central bank up for more rate hikes before its tightening cycle was completed, delivered at a possibly slower pace.

The document “implied that [the Fed] may be aiming for a higher medium-term level for the fed funds rate than currently expected,” Mr Nelson warned.

Investors were expecting a signal the Fed might ease up on its pace of tightening after a blistering run that raised the policy rate from near zero in March to what is now a range of between 3.75 per cent and 4 per cent — the fastest monetary tightening since the early 1980s.

The pace of the rate hikes has triggered global anxiety the Fed is dragging the world economy towards a point of no return, with the dollar’s strength against major currencies in effect exporting US inflation and stressing financial markets from London to Tokyo.

The Fed’s statement broadly acknowledged the need to assess the effect of the policy moves made so far in any future decisions, noting that interest rate rises affected the economy with a considerable lag.

The time to reassess the pace of increases “is coming”, Mr Powell said.

“It may come as soon as the next meeting or the one after that … No decision has been made.”

At the Fed’s September 20-21 meeting, the median estimate among policymakers pegged the peak fed funds rate next year at between 4.5 per cent and 4.75 per cent. Rate futures markets now imply about even odds of it climbing to 5 per cent or higher next year.

A 0.25 percentage-point rate rise earlier this week took Australia’s cash rate target to 2.85 per cent, with money markets expecting it to peak above 4 per cent, but economist forecasts generally in the range of 3.1 to 3.85 per cent.

In a speech after that meeting, Reserve Bank of Australia governor Philip Lowe left open the possibility of reverting to bigger interest rate increases if inflation remained out of control over the summer.

After initially jumping to around 65 US cents on the Fed’s post-meeting statement, the Australian dollar has since tumbled to 63.6 US cents by 9:19am AEST.


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