US Fed's 'Giant Step' Calms Market for Now... "A Clear Signal of Price Stability"

Uncertainty Disappears... Major Markets Rise Over 1%
Inflation Surge Expected to Ease... "If Not, Investor Sentiment Will Worsen"

[Image source=EPA Yonhap News]

[Asia Economy Reporter Hyunwoo Lee] Despite the Federal Reserve's (Fed) decision to raise interest rates by 0.75 percentage points, stock markets in the United States, Europe, and major Asian countries are all showing upward trends. This is analyzed as a relief stemming from the improved uncertainty regarding U.S. interest rate policy and the Fed's clear signal to focus on price stability. However, there are forecasts that if inflation does not subside or if the U.S. economy falls into a recession, investment sentiment could once again contract.

According to CNBC on the 15th (local time), both U.S. and European stock markets closed with gains of over 1% around the time of the Fed's rate hike announcement. The U.S. Dow Jones Industrial Average rose 1% from the previous day, the S&P 500 increased by 1.46%, and the Nasdaq surged by as much as 2.5%. Alongside this, major European indices also closed with gains exceeding 1%, including Germany's DAX30 at 1.36%, the UK's FTSE100 at 1.20%, and France's CAC40 at 1.35%.

Although the Fed implemented a giant step for the first time in 28 years, it is evaluated that the resolution of uncertainty regarding U.S. interest rate policy led to the rebound in major stock markets. Sima Shah, Chief Strategist at Principal Global Investors in the U.S., said in an interview with Bloomberg News, "The market had significant fears about a 100bp (1bp = 0.01 percentage points) hike, but the 75bp increase, which was already reflected in the prior downturn, did not provide any additional negative surprises."

Additionally, the Fed's strong commitment to curbing rapid inflation has rather raised expectations for medium- to long-term economic improvement and stabilized investment sentiment. Tim Holland, Chief Investment Officer at Orion Advisor Solutions, analyzed, "The market found great comfort in the Fed sending a clear signal that it will definitely fight inflation. It is positive that, rather than sending mixed signals over time, the Fed clearly stated from the start that it would implement a large rate hike and quickly move to control inflation."

However, concerns are also emerging that if the rate hike fails to curb inflation as expected, it could instead trigger an economic recession. Eric Thoret, Global Macro Strategist at Manulife Investment, warned, "The market currently perceives this as the only 75bp hike and is relieved that inflation will be controlled without further giant steps in the future. However, if inflation control fails and another rate hike of this magnitude is announced, investment sentiment will deteriorate sharply."

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