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Fed resumes rate hikes after pause

The US Federal Reserve (Fed) raised interest rates by another quarter of a percentage point to bring its benchmark overnight rate to a range of 5.25% to 5.5% on Wednesday in a move anticipated by market participants. Markets barely budged following the announcement as the rate hike had already been largely priced in.

Shane Strowmatt, LGT
Reading time
5 minutes
Fed building
© Shutterstock

The Fed raised rates for an eleventh time in its last 12 policy meetings after leaving rates unchanged last month. Despite falling inflation, Fed Chair Jerome Powell emphasized that the economy and labour market both needed to weaken in order for inflation to return to the central bank’s 2% target and remain at that level. The Fed will have ample time to observe the effects of its recent policy decisions as the next meeting is eight weeks from now. Despite the fastest hiking cycle in decades, unemployment in the US is at low 3.6% and consumer spending has remained strong. New personal consumption expenditures data – a measure of inflation preferred by the Fed – is set for release on Friday.

In New York, stocks reacted little to the Fed decision on Wednesday. At the close of the session, the Dow Jones Industrial stood 0.23% higher at 35,520.12 points. The broad S&P 500 lost 0.02% to finish at 4566.75 points. The tech-heavy Nasdaq-100 closed at 15,499.27 points, down 0.40% from the previous day.

In individual stocks, tech stocks were on the move Wednesday, after Google parent company Alphabet and software giant Microsoft reported earnings the day before. Alphabet shares gained 5.78% on Wednesday after reporting late Tuesday that second-quarter revenue rose 7% on the year and cloud revenue was up 28%. US tech peer Microsoft’s shares lost 3.76 % also after releasing quarterly results at the close of trading a day earlier. Tech earnings continued with Meta late Wednesday. The social media company reported 11% revenue growth in the second quarter when compared with the same period a year earlier and issued a third-quarter revenue outlook above market expectations. The company’s shares were trading higher in after-hour trading.

In Asia, stock markets were on the rise Thursday after the Fed decision. In Tokyo, the Nikkei 225 gained 0.7% and in South Korea, the Kospi was trading up 0.6%. In Australia, the S&P/ASX 200 was up 0.8%. Hong Kong's Hang Seng Index jumped 1.5%, while the Shanghai Composite was up just 0.2%.

Corporate news in focus: Earnings figures from Holcim, Schneider Electric, Roche, Mercedes-Benz, Air Liquide, Nestle, Volkswagen, Bristol Myers Squibb, TotalEnergies, Shell, Linde, McDonald's, Intel.

Economic data in focus: ECB interest rate decision (14:15 CET), US gross domestic product (14:30).

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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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