Half an hour before the open, ‘futures’ contracts on the major New York indices are losing between 1.7% and 2.4%, which implies that the American markets could erase all of their gains from yesterday.
The US central bank yesterday took a further step in its monetary tightening cycle by proceeding with its first rate hike of 75 basis points since 1994.
The equity markets nevertheless seemed reassured by the words of Jerome Powell, its chairman, who suggested that the intensity of these tightenings could slow down as inflation indicators improve.
Wall Street wanted to see the possibility of a moderation in the pace of rate hikes by the Fed and welcomed these announcements by closing Wednesday’s session up sharply.
But the Fed has also revised its growth forecasts downwards, only targeting a 1.7% increase in activity in 2022 and 2023, against +2.8% and +2.2% previously, which could explain why market optimism waned so quickly.
These forecasts suggest that the Fed expects its tightening measures to come at the cost of a deceleration in growth, or even perhaps of entering a recession.
‘By initiating this significant shift, the Fed wants to bring inflation under control, even if this should result in a slowdown in the economy’, warn economists at Commerzbank.
As such, several indicators published before the opening seem to confirm the scenario of a loss of momentum for the world’s leading economy.
The number of housing starts fell sharply (-14.4%) in May, a deterioration that reflects a slowdown in the residential construction market.
At the same time, industrial activity in the Philadelphia area contracted this month, as illustrated by the ‘Philly Fed’ index which came out at -3.3 in June.
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