NEW YORK – Markets worldwide are back to tumbling on Thursday, and Wall Street is down roughly 3% in a widespread wipeout as worries about a fragile economy roar back to the fore.
The S&P 500 was 2.9% lower in midday trading, more than reversing its blip of a 1.5% rally from a day before. Analysts warned of more big swings given deep uncertainties about whether the Federal Reserve and other central banks can tiptoe the narrow path of hiking interest rates enough to get inflation under control but not so much that they cause a recession.
The Dow Jones Industrial Average was down 670 points, or 2.2%, at 29,998, as of 11:25 am Eastern time, and the Nasdaq composite was 3.6% lower. The S&P 500 was on track for its sixth loss in the last seven days, and all but five of the 500 companies in the index were lower.
Wall Street fell with stocks across Europe after central banks there followed up on the Federal Reserve’s interest-rate hike on Wednesday. The Bank of England raised its key rate for the fifth time since December, though it opted for a more modest 0.25 percentage points than the 0.75-point hammer brought by the Fed.
Most Asian markets also fell, as did the price of oil.
Shares in New York rallied Wednesday afternoon after the Fed’s hike, the biggest since 1994, as investors initially took heart from Chair Jerome Powell’s comments suggesting future rate increases may be more modest.
But economists warned the gains might be short-lived given the extent that high inflation has seen into the world economy.
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Global rate hikes
The Bank of England raised its main rate on Thursday, but only by a quarter point, shrugging off pressure for a bolder move to combat price increases that have pushed inflation to a 40-year high.
It was the United Kingdom central bank’s fifth quarter-point increase since December, which took its key rate to 1.25%.
The Swiss National Bank raised rates by surprisingly strong half percentage point, to a still low minus 0.25%. Taiwan’s central bank raised its key rate by 0.125 basis points to 1.5%.
“The clear read-through here is the FOMC (Fed) has unleashed the central bank Hawkish Genie from the bottle, and we should expect more aggressive follow-through from other central banks except those who are economically challenged,” Stephen Innes of SPI Asset Management said in a commentary.
France’s CAC 40 sank 2%, Germany’s DAX dropped 2.7% and Britain’s FTSE 100 shed 2.3%.
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Bank of Japan meets
In Asian trading, Japan’s benchmark Nikkei 225 added 0.4% to finish at 26,431.20. Australia’s S&P/ASX 200 gave up earlier gains, falling nearly 0.2% to 6,591.10. South Korea’s Kospi edged 0.2% higher to 2,451.41. Hong Kong’s Hang Seng shed 2.2% to 20,845.43, while the Shanghai Composite fell 0.6% to 3,285.38.
The Bank of Japan started a two-day policy meeting that will end on Friday. The Japanese central bank is under pressure to act given downward pressures on the yen from US rate hikes and super-low rates in Japan. But its aim has been to foster sustainable inflation after years of fending off deflation, or falling prices.
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Investors have been selling yen and buying dollars in anticipation of higher yields from dollar-denominated holdings. Japanese politicians and the central bank chief have expressed worries about the declining yen, but no dramatic policy changes are expected.
The US dollar slipped to 132.80 Japanese yen from 133.82 yen. It recently topped 135 yen, the highest level in 20 years. The euro cost $1.0394, down from $1.0447.
All kinds of investments, from bonds to bitcoin, have tumbled this year as high inflation forces central banks to try to slow inflation that has flared as recovery from disruptions of the pandemic. The war in Ukraine has added to those price pressures.
Powell said Wednesday the Fed is moving “expeditiously” to get rates closer to normal levels after last week’s stunning report that showed inflation at the consumer level unexpectedly accelerated last month, dashing hopes that inflation may have already peaked.
However, Powell, also hinted that rate increases later this year may be smaller. That appeared to assuage fears the central bank might overshoot its goal of cooling inflation and tip the economy into a downturn.
The Fed is “not trying to induce a recession now, let’s be clear about that,” Powell said. He called Wednesday’s big increase “front-end loading.”
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Even without recession, higher interest rates hurt prices for investments. The hardest-hit have been those that soared the most in the easy-money era of ultralow interest rates, including high-growth technology stocks and cryptocurrencies.
The war in Ukraine has helped send prices for oil soaring because the region is a major producer of energy.
In energy trading, benchmark US crude dropped $1.59 to $113.72 a barrel in electronic trading on the New York Mercantile Exchange. It shed $3.62 on Wednesday to $115.31 a barrel. Brent crude, the international standard, gave up $1.73 to $116.78 a barrel.