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Fed continues inflation fight with moderate hike

The Federal Reserve increased interest rates by 25 basis points in an effort to balance its fight against inflation with the need for stability in the financial sector. The move, which increases the federal funds target range to 4.75-5.00%, was largely in line with investor expectations. While equity markets initially barely moved on the monetary policy decision, rekindled concerns about weakness in the US banking sector later put markets under pressure.

Alessandro Fezzi, LGT
Reading time
5 minutes
Fed building
© Shutterstock

In a press conference Wednesday, Federal Reserve Chairman Jerome Powell attempted to sooth investors about the stability of the financial sector, saying Silicon Valley Bank’s collapse does not suggest the entire banking sector is weak. At the same time, US Treasury Secretary Janet Yellen made it clear in comments before the Senate that she is not planning a widespread guarantee of deposits at all US banks after three banks collapsed in the previous weeks. Investors had hoped for a sweeping guarantee on deposits to stem the threat of bank runs and consequently the US benchmark KBW Bank Index closed the day down nearly 5% with struggling lender First Republic Bank losing more than 15%.

Sentiment in New York turned sour late in the trading session Wednesday with the Dow Jones Industrial losing 1.63% to close at 32,030.11 points and the S&P 500 ending down 1.65% at 3,936.97 points. On the Nasdaq, the major tech indices lost about 1.4%.

Markets in Asia were more mixed on Thursday. In Japan, the Nikkei 225 lost 0.2% while South Korea’s Kospi gained 0.14%. In Hong Kong, the Hang Seng Index was among the major winners, trading up 0.85% and the Hang Seng Tech Index also gained nearly 2%. In mainland China, the Shanghai Composite increased 0.5% and the Shenzhen Component was down marginally.

Thursday, two more major central banks will explain to investors how they plan to fight inflation while simultaneously ensuring financial stability, when both the Swiss National Bank and the Bank of England announce interest rate decisions. Market participants will listen Thursday morning for comments from the SNB about UBS’s takeover of banking peer Credit Suisse and the deal’s meaning for Switzerland as a global financial centre. In the afternoon, the Bank of England is now largely expected to continue raising rates, likely with a 25-basis-point move, after UK inflation data showed on Wednesday that consumer prices were up a stubbornly high 10.4% on the year in February.

Corporate news in focus: Accenture Q2 figures (08:00 CET), Fresenius and SGL Carbon release annual reports, ABB holds annual general meeting

Economic data in focus: Swiss National Bank interest rate decision (09:30 CET), Bank of England interest rate decision (13:00 CET) and European Council kicks off two-day summit in Brussels

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi,
Source: LGT Bank (Switzerland) Ltd.

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