Stocks plummet as post-Fed rally fizzles amid global effort to curb inflation

U.S. stocks slid on Thursday after the Federal Reserve’s biggest rate hike in decades and as central banks including the Bank of England followed with increases of their own in an effort to subdue rising inflation.

Following the Fed’s 0.75 percentage point hike in its benchmark rate on Wednesday, the Bank of England upped its rate by 25 basis points to 1.25%.

“Other central banks have joined the parade of tightening,” Art Hogan, chief market strategist at National Securities Corp., told CBS MoneyWatch. “The markets are considering the fact that this inflation issue is global and all central banks are behind the curve and need to get more aggressive.”

The Fed has rapidly shifted gears this year from propping up the economy during the pandemic to trying to choke off a surge in consumer prices, which have been rising at the fastest rate since the 1980s. 

Policymakers hiked the federal funds rate, which controls how much banks pay to borrow money from each other — 0.25% of a percentage point in March and followed that with a half-point move in May. The push to lower consumer demand and tamp down inflation is raising concerns that sharply higher interest rates could trigger a recession. 

The Swiss National Bank raised its key interest rate for the first time in 15 years, a surprise move that rattled the market. 

“The Swiss National Bank came out of the blue, and when you throw central banks and emergency in the same sentence, that tends to raise some eyebrows,” Hogan noted. 

A look at how the Fed’s interest rate hike could impact consumers


Still, Thursday’s market decline is in keeping with recent history, Hogan noted. “Over the last six Federal Reserve meetings the market has rallied the day of and sold off the day after, so in terms of discernible patterns it appears to be think again Thursday,” he said.

In early morning trade, the Dow Jones Industrial Average fell 766 points, or 2.5%, to 29,901. The S&P 500 declined 102 points, or 2.7%, to 3,686, while the technology-heavy Nasdaq Composite shed 315 points, or 2.8% to 10,784.

Data showing new U.S. home construction fell in May furthered the bleak view on Wall Street. 

“The mindset of the market is extremely negative — all rallies are considered an opportunity to sell stocks further as a recession is thought to be inevitable (barely anyone thinks the U.S. economy can avoid a recession with the Fed tightening as aggressively as it is),” Adam Crisafulli of Vital Knowledge said in a report.

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