Global markets traded positively on Thursday following the Federal Reserve's decision to raise interest rates by 25 basis points to a range of 3.75-4%. This decision was made amid selling pressure on the New York Stock Exchange on Wednesday.
Details of the Rate Hike
The Federal Reserve announced that strong production and domestic investment were the main factors behind this decision. Additionally, the economic body pointed to increased hiring and stated that the unemployment rate has largely remained stable. This rate hike follows the last increase in July 2023.
The Federal Reserve's inflation forecasts were also revised; the inflation forecast for the current year increased from 3.6% to 3.7%, while the forecast for 2027 remained unchanged at 2.3%. The forecast for 2028 increased from 2% to 2.1%, and inflation is expected to reach 2% in 2029.
Market and Economic Reactions
The dot plot shows that 16 out of 18 officials expect at least one more rate hike this year. Federal Reserve Chair Kevin Warsh stated that inflation has been very high for a long time and that the data released in the summer does not indicate significant progress in underlying trends. He believes that the rate hike is a correct step towards ensuring price stability.
Meanwhile, US President Donald Trump has called for a reduction in interest rates to 1% or lower. These expectations of a rate hike reduced risk appetite, but Warsh's emphasis on stability led to improvements in indices on Thursday.
The US dollar index rose above 100 for the first time since August 4, trading at 100.3 on Thursday amid increased expectations of a rate hike. Meanwhile, Brent crude oil prices for November delivery fell 2.7% on Wednesday, reaching $105.8 per barrel.
Gold increased by 0.5% on Thursday, reaching $4,287 per ounce, while the yield on the US 10-year Treasury remained at 5.01%. The New York Stock Exchange closed lower on Wednesday after the Federal Reserve's decision, as bank stocks fell and concerns about high interest rates and their impact on credit slowdown and economic growth increased.
Shares of JPMorgan Chase fell 1%, Bank of America 2.7%, Wells Fargo 3%, and Goldman Sachs 4%. Additionally, the average 30-year mortgage rate in the US reached 6.97% last week, the highest level since May 2025.
Retail sales in the US increased more than expected by 1.2%, and the import price index rose by 0.7% and the export price index by 0.6% in August. On Wednesday, US stock indices including Dow Jones fell by 1.21%, S&P 500 by 0.45%, and Nasdaq by 0.01%. However, European markets rose on Wednesday, influenced by mining stocks.
In the UK, annual inflation reached a five-month high of 3.1%, largely driven by transportation costs and gas prices. Inflation is expected to rise above 4% in the coming months. All eyes are on the Bank of England's interest rate decision on Thursday.
The Bank of England is likely to maintain its interest rate policy, but rising inflation expectations may lead to an increase in November. Meanwhile, European Commission President Ursula von der Leyen announced that the European Union is preparing the ground for Canada to become its first dependent member.
