The Federal Reserve stirs up trouble

It was necessary to have the heart well hung on the Stock Exchange this week, with variations of an unprecedented magnitude on a single session, in particular Thursday, May 5 for the Nasdaq (-5%). This extreme volatility reflects the uncertainty prevailing in the markets. Growth and inflation are central concerns.

As a highlight, Wednesday evening, the 50 basis point increase in federal funds, at the end of the Fed’s monetary policy meeting. This half-point increase, the strongest since 2000, was not a surprise. The Stock Exchange expected it and some experts even counted on 75 points. The American central bank did not want to strike too hard, no doubt having in mind the latest figures for the American gross domestic product. Its contraction of 1.4% in the first quarter served as a reminder that the American economic recovery is threatened. Inflation erodes household purchasing power and slows down consumption, the engine of the economy.

For now, the Federal Reserve is refusing to raise rates by more than 50 basis points during its next committees, in June and July. Initially relieved, investors then wondered whether this monetary policy was sufficiently dovish (dove) would be effective in curbing inflation on an unprecedented scale. But how to be more aggressive without risking a hard landing in growth? On Friday, investors kept their foot on the brake (-1.73% for the Cac 40, -0.08% for the Dow Jones at 5:30 p.m.) after the announcement of a wage increase in April, what to do further climb the price index. US growth was not the only concern of the stock market.

In China too, growth is marking time, given Beijing’s “zero Covid” policy. As for the possible European embargo on Russian oil (it was requested by Ursula von der Leyen, the President of the European Commission), it will no doubt drive up the price of a barrel even further, which does not bode well.