Fed raises interest rates by 0.25 percentage points – mixed reaction on US stock markets
Quick Look
- The US Federal Reserve increased the key interest rate by 0.25 percentage points to 3.75 to 4.00 percent.
- The decision was expected, the stock markets reacted inconsistently: The Dow Jones fell slightly, the S&P 500 remained almost unchanged, while the Nasdaq and Nasdaq 100 rose.
- The main reason is the stubbornly high inflation.
AI-generated summary
Why It Matters
The Federal Reserve raised interest rates for the first time in about three years to combat stubbornly high inflation. Inflation in August was 3.4 percent for the year, core inflation was 2.4 percent. The labor market appeared robust with more new jobs created than expected.
The US Federal Reserve raised interest rates by 0.25 percentage points. Individual stock market indices react slightly negatively. On the other hand, there are signs of some easing in bond yields.
Street sign on New York's Wall Street. Photo: dpa
Dusseldorf. The US stock markets reacted mixedly to the Federal Reserve's interest rate hike. At 8 p.m. German time, the US Federal Reserve announced that it would raise its key interest rate by a quarter of a percentage point for the first time in around three years. The interest range is therefore 3.75 to 4.00 percent.
The decision had been expected by analysts in advance. The markets initially react cautiously to the decision. Before the interest rate decision, all indices were in the black, after which prices on Wall Street fell somewhat.
The US standard value index Dow Jones was 0.4 percent lower at 51,884 points.
The broader S&P 500 was trading almost unchanged at 7,590 points.
The technology-heavy Nasdaq Composite gained 0.5 percent to 26,112 points.
The Nasdaq 100, a reflection of the 100 non-financial companies with the highest market capitalization, was up around 0.7 percent at 29,148 points.
JP Morgan has looked at various scenarios for the US Federal Reserve's interest rate decision. Markus Koch explains how the Fed's decision and signals about the future monetary policy course could affect the stock market, according to the major bank.
The main reason for the interest rate increase is the stubbornly high inflation: In August it remained at 3.4 percent for the year, as the responsible statistics office announced last week. Core inflation, which is particularly relevant for the Fed, also remains at an elevated level. It was 2.4 percent.
The Fed has a dual mandate and strives for full employment in addition to stable prices. The labor market was robust in August, with more jobs created than expected. This development also points to an interest rate increase.
Open Questions
- What will the Fed's further monetary policy development look like?
- What are the long-term effects of the interest rate hike on economic growth?
- How will international markets react to US monetary policy?
