European stocks look set to open deep in the red on Thursday after Federal Reserve officials raised rates by 75 basis points for the third consecutive meting and signaled even more aggressive hikes than investors had envisioned in the months ahead to cool stubbornly high inflation.
The dollar surged to a fresh two-decade high and yields on the 2-year U.S. note vaulted over the 4 percent mark, their highest levels since 2007, as the accompanying policy statement and projections signaled another 75bp move in November followed by a 50bp move in December.
“We have got to get inflation behind us,” Fed Chair Jerome Powell told reporters. “I wish there were a painless way to do that. There isn’t.”
The focus now shits to the Bank of England and Swiss National Bank meetings due later today, with both expected to hike rates by 75 bps.
Closer home, the euro zone may suffer a recession over the winter but that is not enough to reduce inflation without further rate hikes, European Central Bank Vice President Luis de Guindos said on Wednesday.
Asian markets followed Wall Street lower, with Hong Kong stocks hitting a near 11-year low. Earlier today, the Bank of Japan maintained its ultra-low interest rates and issued a dovish policy guidance, helping the greenback climb to a new 24-year high above 145 yen.
U.S. stocks fluctuated before eventually ending sharply lower overnight as the Fed delivered a widely expected 75-bps rate hike and signaled further aggressive rate hikes for the remainder of the year.
Economic projections provided along with the announcement suggest Fed officials expect to raise rates to 4.4 percent by the end of the year, well above the 3.4 percent forecast in June.
Fed officials expect to increase rates to 4.6 percent by the end of 2023 before eventually scaling back rates in 2024 and 2025.
The Dow shed 1.7 percent to hit a three-month closing low, while the S&P 500 and the tech-heavy Nasdaq Composite gave up 1.7 percent and 1.8 percent, respectively to reach over two-month closing lows.
European stocks closed higher on Wednesday ahead of the Fed decision.
The pan European Stoxx 600 gained 0.9 percent. The German DAX rose 0.8 percent, France’s CAC 40 index climbed 0.9 percent and the U.K.’s FTSE 100 added 0.6 percent.
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