“I don’t expect displacements of this magnitude to become commonplace,” Powell told reporters. However, he left the door open for another increase of the same magnitude next month if the data doesn’t improve.
The Fed is not alone in its efforts to prove that it is all right.
After the meeting, the ECB said it would accelerate work on new ways to ease the burden on heavily indebted European countries as interest rates rise.
Investor opinion: On Wednesday, central banks managed to calm the markets. The S&P 500 rose 1.5%, breaking a five-day losing streak. Yields on benchmark Italian and Greek bonds, which are moving in opposite directions, declined as selling pressure eased.
“The market seems happy at the moment,” said Jeffrey Frankel, co-president of Stuart Frankel & Co., a stockbroker.
If the ECB had made it clear at its meeting last week that it would not tolerate “fragmentation” in the European bond market – referring to the rapid rise in Italian and Greek bond yields – it would not have had to adjust the course, he said. Holger Schmieding, Chief Economist at Berenberg Bank.
The ECB clearly has the ability to intervene as needed. But a communication slip could have long-term consequences, he argued.
“ECB [on Wednesday] managed to reverse some of the sales,” he said in a note to customers. “But after the turmoil of the past few days, the markets are now more nervous than before.”
Strategists are also concerned that a sharp increase in the Fed’s interest rate could increase the likelihood of a recession in the US, sharply slowing down economic growth.
“Inflation is strong and hasn’t peaked yet, so Powell is cornered,” said Kenny Polcari, managing partner at Kace Capital Advisors. “They should have been more aggressive early in the process.”
When will the Bitcoin sell-off hit bottom?
On Wednesday, the most expensive cryptocurrency in the world almost hit $20,000. It has lost about 70% of its value since hitting an all-time high last November when it was priced at around $69,000.
A drop below the $20,000 barrier would be a sobering milestone for a market that has flourished during the pandemic, analysts say.
“A move below $20,000 would be a major psychological blow and could send bitcoin into a tailspin,” said Craig Erlam, senior market analyst at Oanda, a foreign exchange firm.
Ether, the second most valuable digital coin, has lost nearly 80% of its value since its peak in November.
As central banks raise interest rates to control inflation, traders are turning away from riskier investments, including volatile crypto assets.
“Bear crypto markets typically drop 85% to 90%,” said Jason Janowitz, co-founder of Blockworks, a research platform for crypto investors.
During the downturn in 2017 and 2018, bitcoin fell 83%, from $19,423 to $3,217. It retraced all those losses at the end of 2020 and rose sharply in 2021.
“I really don’t agree with people who say it’s impossible to recover from something like this,” Janowitz said.
Consumer spending falls due to inflation
Retail sales fell 0.3% in May from April, the first spending cut this year, according to data released Wednesday.
Filling costs increased by 4% in May compared to April. This is 43% more than last year, due to higher prices at gas stations. Spending at grocery stores, where prices are also on the rise, rose 1.2% from April.
Spending at other retailers, meanwhile, was down 1% from the previous month.
“You see continued shifts in consumption, you see some sales drop, but overall spending is really high,” Powell said on Wednesday. “The consumer is in really good financial shape.”
Remember: Households still have savings from the pandemic that they can use to cushion the blow of high inflation. Compared to May 2021, retail sales increased by 8.1%.
Kroger reports earnings before US markets open. Adobe follows after closing.
The first US jobless claims last week and housing commissioning in May came in at 8:30 am ET.