"Fed Giant Step in Sight"...Global Stock Markets Panic Sell

WSJ, CNBC, NYT Report Consecutive 0.75% Rate Hike Possibility
FedWatch Giant Step Probability Rises to 95.1% in One Week
S&P 500 and Global Markets Enter Bear Market

[Image source=Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] Amid soaring inflation, the U.S. central bank, the Federal Reserve (Fed), is increasingly expected by Wall Street to take a ‘giant step’ by raising the benchmark interest rate by 0.75 percentage points at once. The prospect of aggressive monetary tightening has intensified fears of a recession, sending global stock markets into a panic sell-off.

Major media outlets including The Wall Street Journal (WSJ), Bloomberg, CNBC, and The New York Times (NYT) all simultaneously reported on the possibility of a giant step on the 13th (local time), citing their own forecasts. The flood of such reports during the Fed’s blackout period, when Fed officials are prohibited from making public statements, has led to speculation that there may have been tacit communication with the authorities.

The U.S.’s largest investment banks, JP Morgan Chase and Goldman Sachs, also stated in investor memos on the same day that the Fed is expected to raise interest rates by 0.75 percentage points at the Federal Open Market Committee (FOMC) meeting held over two days starting the next day.

Michael Feroli, JP Morgan Chase’s Chief U.S. Economist, said, “This decision reflects the soaring inflation expectations among Americans,” adding, “There is even a non-trivial risk of a 1.0 percentage point increase.” If the Fed takes a giant step, it will be the first such decision in 28 years since 1994.

Until now, the Fed had signaled a big step (0.5 percentage point increase) at the June and July meetings, drawing a line against a giant step. However, following the release of the U.S. Consumer Price Index (CPI) for May, which recorded the largest increase (8.6%) since 1981, and the New York Federal Reserve’s announcement that inflation expectations for the next year reached a record high of 6.6%, the sentiment that a big step is insufficient is spreading.

According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds (FF) rate futures market reflects a 95.1% probability of a 0.75% rate hike at the June FOMC. This is a sharp increase from just 3.1% a week ago.

Amid heightened tightening concerns, the S&P 500 index, representing the New York stock market, as well as the global stock market indicator Morgan Stanley Capital International All Country World Index (MSCI ACWI), have officially entered bear markets, having fallen more than 20% from their previous highs. It is the first time since March 2020, right after the pandemic, that the large-cap focused S&P 500 index has entered a bear market based on closing prices.

This content was produced with the assistance of AI translation services.