Complete Overview of Fed’s Rate Decision; Carnage in Global Mkts, Nifty in Red

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Complete Overview of Fed’s Rate Decision; Carnage in Global Mkts, Nifty in Red

By Malvika Gurung -- The highly anticipated Federal Reserve’s stance on soaring inflation came in, as the US central bank’s 2-day long policy meeting ended on Jan 26. The Federal Open Market Committee (FOMC) turned the most hawkish since under the Fed Chairman Jerome Powell.

In its latest update on Wednesday, the Fed indicated a possible hike in interest rates in March, while announcing plans to shrink its balance sheet, which has swelled to almost $9 trillion.

Its policymaking group cited an increase in the interest rate by a quarter-percentage point. Fed Chair Powell added that the central bank could move aggressively, as inflation is at its highest in almost 40 years and the labor market lays strong.

While the Fed did not specify when it would start shrinking its bond holdings, the Committee expects it to start after the interest rates are hiked, i.e. in March.

The rate hike in March would be the Federal Reserve’s first hike since Dec 2018, and many analysts expect three more interest rate hikes this year, with additional moves.

The Fed’s balance sheet has exceeded over double its size before the officials started to massively purchase assets at the beginning of the pandemic, to cushion market panic.

Officials at the Fed warned the volatility to remain in the markets, with high chances of increasing in the upcoming months. As a result, yields on the 10-year Treasury notes rose sharply and the dollar DOLLAR/USD dominated most major currencies.

India's benchmark 10-year bond yield hit a 25-month high on Thursday and the rupee fell to its lowest level in a month.

The Indian equity benchmarks witnessed a terrible opening on Thursday, led by a global carnage in foreign markets. By 9:20 am, BSE Sensex had fallen 1,048.18 points and Nifty50 hit a low of 16,958.85. At 10:15 am, Nifty was trading 1.46% lower and Sensex, 1.47%. Nifty Bank was down 1%.

At 10:45 am, South Korea’s KOSPI was trading 3.2% lower, while Nikkei 225 declined 3.2%, Hong Kong’s Hang Seng index was down 2.6% and China’s Shanghai Composite was down 1.15%.

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