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However, while the hike has largely been priced into the markets, the United States central bank’s forecast and post-meeting comments from boss Jerome Powell are the main attraction for investors.
“Volumes remain light and the mood cautious, with few looking to take on large positions before hearing what the Fed says and where policy makers see rates going by the end of the hiking cycle,” Fiona Cincotta, at City Index, said.
“This is what will drive the markets, not the rate hike … but what the Fed plans to do next.”
Fed officials have for months stuck to the mantra that they will only ease up on their hawkish drive when inflation comes down and remains subdued.
This has led many to warn that rates are unlikely to come down anytime soon, possibly as late as 2024, with a recession more than likely in the US as well as other major economies.
“LONG AND UGLY” RECESSION?
Other central banks are also meeting this week.
On Tuesday, officials in Sweden surprised markets by unveiling a one percentage-point hike, while the United Kingdom and Switzerland are expected to announce more increases.
While there is debate on how bad any contraction will be, Nouriel Roubini, who predicted the 2008 economic meltdown, said he saw a “long and ugly” recession by the end of the year that would not likely end until the end of 2023 with severe consequences for equities.
“Even in a plain vanilla recession, the S&P 500 can fall by 30 per cent,” he said, adding that “a real hard landing”, which he has forecast, could see it give up 40 per cent.
In early trade, Asian markets were back in the red, reversing Tuesday’s rate bounce.
Tokyo, Hong Kong, Sydney and Manila were all down more than 1 per cent, while there were also losses in Shanghai, Seoul, Wellington, Taipei and Jakarta.
Part of the reason for the weakness is the sharp slowdown in China, which has been battered by a series of COVID-linked lockdowns this year that have seen tens of millions of people shut away and factories close down for months.
In light of that – as well as the Ukraine war and rate hikes – the Asian Development Bank on Wednesday cut its 2022 growth forecast for developing Asia and warned of “global headwinds” to the recovery.
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