Indexes Fall 4% On Fed's Inabilities In Controlling Supply Shocks

Barry Adams
05 May, 2022
New York City

U.S. stocks turned negative at the opening and began erasing most of the gains logged a day ago after the Fed lifted rates as widely anticipated and for now rejected the need for faster rate hike. 

The S&P 500 index gained 1.1% to 4,249.34 and the Nasdaq Composite index declined 1.8% to 12,738.02. 

Chairman Jerome Powell at a press conference after the rate decision yesterday highlighted the need to bring down the inflation from the current 8.5% rate to the Fed target rate of 2%. 

However, Powell also added "our tools do not do well" with supply side shocks. 

Chairman Powell added that the Fed is powerless in impacting the Inflation emanating from the rising energy prices and supply disruptions linked to China's Covid-19 lockdowns. 

Powell went on to add that the "economy is strong" and "labor markets are stronger" and the labor market imbalance can be brought in sync using monetary policy tools.

The JOLT report released by the U.S. Department of Labor indicated there are at least 11.5 million job openings and 6.5 million people are looking for work. 

Yet, the labor participation rate is held steady between 61% and 63% and the rate is expected to decline. 

European markets traded higher and the pound tumbled after the Bank of England lifted the key interest rate by 25 basis points to 1%. 

The central bank raised rates for the fourth time in a row and highlighted the risk of economic slowdown and added that the inflation is likely to peak around 10%. 

The pound dropped 2% and fell to $1.23. 

Markets in Japan and South Korea were closed today.

Market indexes in Mumbai surged at opening after the U.S. Federal Reserve raised its key rate 50 basis points and said that the faster rate increase of 75 basis points is not discussed at least for the next couple of meetings. 

Benchmark indexes soared as much as 2% after 20 minutes of trading and traded in a tight range for the next two hours but erased most of the gains near close. 

Tech stocks led the gainers followed by the strength  in auto, steel, real estate and banks.

Tech Mahindra, Infosys, Tata Consultancy, Nestle India, Maruti Suzuki and Ultratech Cement led gainers. 

Life Insurance Corporation public offering was subscribed 91% with policyholders nearly three times and employees nearly two times subscribing the allocated quota. 

The Hang Seng Index in Hong Kong fell 0.4% after China's service sector contracted at the second fastest pace in April and on the ongoing China lockdowns and tech sector crackdown worries. 

The ASX 200 index in Sydney rose 0.8%.