The US Federal Reserve may probably put up interest rates in order to create a response to the surging Inflation. This decision of the Federal Reserve affected the global financial markets that tumbled last Monday as many investors were concerned about the US inflation rate.
Share prices fell down on both sides of the Atlantic, and this change is visible in all aspects of trading. The FTSE 100 shedding 40 points was not a surprise and, in London, the share prices were down by 0.5%.
On Wall Street, US stocks fell by a more substantial margin, and the traders believed the American central bank would take some action to deal with the inflation. The last time when the bank was part of the influencing points on stocks was in March last year.
All the actions might reduce the inflation rates that are the highest rates in the last 40 years.
The Nasdaq index faced a serious change in the recent period. It is in correction territory and it faces a drop of more than 10%. This drop is happening at the same time as the current sell-off in US tech stocks that is hitting the market while causing the all-time high that was reached in November.
House building companies experienced the biggest loss in the London market. This happened after the UK government announced that £4 billion will be invested in removing dangerous cladding from the Grenfell Tower building that faced a disaster in June 2017.
Following the shares in homebuilding companies, we can notice that Persimmon and Barratt shares fell by about 5%. At the same time, Taylor Wimpey and Berkeley dropped by about 3.5%. This is a significant loss for the companies that base their business on the market fluctuations, and each share drop is a business risk for these companies.
We see all these changes as a result of the epidemic hit in most of the countries. The Omicron variant of the Covid-19 virus has spread a lot of concerns and a lot of troubles that need to be resolved in the near future.
Inflation in the US is hitting all of the European countries as well. Last Monday, the markets in Germany and France finished the day down by more than 1%. This is the result of the many concerns that investors have when it comes to investment in the current market.
We will see if the US Federal Reserve will have the power to reduce inflation and bring it back to the normal percentages. At the moment, we have Fed officials like Chair Jerome Powell who said that the economy no longer needs increasing amounts of policy support. We have also heard that rapid progress will be made towards maximum employment.
All of these actions might reduce the inflation rates that are the highest rates in the last 40 years. US inflation surged to 6.8% in November, the highest level since 1982. The US interest rate is expected to be 0.5% by the end of this quarter.
At the latest Fed meeting in December, the officials agreed the interest rate would rise sooner in order to meet the inflation. Across the Atlantic, we can see the UK reached 5.1% in inflation in November, and it is projected to reach 6% this spring. This increase will be there because of the huge household energy bills that are awaiting the people in the following months.
The Bank of England is expected to raise the interest rate from the current level of 0.25% to more than 1% this year. This will be part of the actions that are aimed to suppress the inflation in the country that is facing similar issues as the US.
One thing is sure. The global financial markets will have a lot of turbulence this year, and we will see who will be the winners in these battles for safe economies and successful governments.
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