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Last week, the US Federal Reserve raised the key interest rate to 0.25 percent. The rise in interest rates has been announced since the beginning of the year after inflation in the US has reached its highest level in over 40 years.
On Monday, less than a week after the rate hike, central bank governor Jerome Powell said he considered inflation “too high” in a speech to the National Association for Business Economics, according to CNBC.
“We will take the necessary steps to ensure a return to price stability,” Powell said, noting that more aggressive measures may be needed.
Bloomberg reports that the market’s expectations of interest rates in the US rose on Monday afternoon Norwegian time in connection with today’s statements from Powell.
After a mixed opening among the leading indices on Wall Street, Powell’s statements sent the stock markets down. The broad S&P 500 index fell 0.04 percent, the industry-heavy Dow Jones fell 0.58 percent and the technology index Nasdaq fell 0.4 percent.
In a press release after Wednesday’s interest rate hike, the central bank wrote that it expects that it will be appropriate with more interest rate hikes in the coming months and that it may be relevant to raise the key interest rate by more than 25 basis points at a time.
The rate hike was the first in three years from the Fed, after it recently completed its support purchases of securities. Ever since the financial crisis, the Fed has supported the purchase of government bonds and mortgage securities with the aim of supporting the economy via the financial markets.
The support purchases have led to a sharp increase in the central bank balance sheet, which has more than doubled since 2020. The Fed has also previously indicated that it may be relevant to start reducing the balance sheet by net selling government bonds in order to normalize monetary policy. Powell indicated last week that this process could be started as soon as in May, but no decision has been made yet, writes CNBC.
The ten-year-old is rising
On Monday, the interest rate on US government debt will rise with a ten-year maturity, popularly called the “ten-year-old”, from around 2.15 per cent to over 2.3 per cent. The ten-year-old is often referred to as “the world’s most important interest rate” because it is both a reference for many interest rates, but also other financial variables, worldwide.
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A rise in long-term interest rates is often a bad sign for growth companies. A growth share is priced higher than earnings indicate, because investors expect future growth, often several years ahead. A higher interest rate in the future will thus reduce the earnings of the growth companies in the long run.
Oil prices
The war in Ukraine continues to give high volatility in oil prices. After falling at the end of last week, the oil price has once again risen. On Monday, a barrel of North Sea oil burned, which is a reference price for oil trade worldwide, is traded for about 113 dollars a barrel.
Russia’s invasion of Ukraine has created unrest over the supply of oil. On Friday, the International Energy Agency (IEA) proposed a series of emergency measures to reduce oil consumption. The IEA’s proposals included reducing speed limits for vehicles, working from home for up to three days a week, and avoiding business travel. It writes CNBC.(Terms)Copyright Dagens Næringsliv AS and / or our suppliers. We would like you to share our cases using a link, which leads directly to our pages. Copying or other use of all or part of the content may only take place with written permission or as permitted by law. For additional terms look here.
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