As expected, the world stock markets immediately reacted to the US Fed’s first policy statement of this year. Wall Street fell after the statement as all three important indexes Standard and Poor’s 500, Dow, and Nasdaq ended the day in a red.
Immediately after the announcement, S&P’s 500 closed down by more than 1%, Dow was down by 1.38% and another important index Nasdaq closed down by over 2% on Wednesday.
The contagion effect was most visible in the Asian markets the next day as China’s Shanghai Composite index was down by almost 3%, closing at 2,656 on Thursday, the lowest level since November 2014.
Japan’s Nikkei 225 also closed down. Only bright spot was Hang Seng of Hong Kong that was up by 0.75% at the close.
During the lunch time Indian stocks were trading marginally above the yesterday’s close. But by the end of the today’s trading both the important indexes – BSE Sensex and NSE Nifty – paired their gains and closed down marginally.
The US Federal Reserve has kept interest rates unchanged in the first policy statement of this year. It said it was closely monitoring the global developments and had accounted for the recent downturn in global markets. It also hinted that it wasn’t ready to abandon the tight monetary policy that entailed further hikes.
Last month, the US Banking sector regulator had upwardly revised the interest rate, the first hike in almost a decade. It had hiked the bench mark lending rates from 0 to 0.25% range to 0.25 to 0.5% range.
The decision by the central bank’s rate-setting committee was widely expected after a month-long plunge in the US and world equities. Particularly the down turn in Chinese stocks at the start of this year had raised the concerns of a global slowdown that could also impact economic growth in the USA.
Fed policymakers said the economy was still on track for moderate growth and a stronger labour market even with gradual rate increases, suggesting that its concern about global events had diminished. But it did not rule out the chances of a rate hike in March.
“The committee is closely monitoring global economic and financial developments and is assessing their implications for the labour market and inflation,” the Fed said in its policy statement following a two-day meeting.
(With agency input)