US Fed Raises The Interest Rate By 75bps, US Stock Market Plunges

In line with the analysts' expectations, the US central bank, Federal Reserve has raised its interest rate by 75 bps, after its FOMC meeting. To restrict the high inflation rate, the US Fed is continuing its tight monetary policy. The Fed reiterated that the FOMC is strongly committed to returning inflation to its 2% objective.

The Fed stated that its battle against inflation will require borrowing costs to rise further, yet signaled it may be nearing an inflection point in what has become the swiftest tightening of U.S. monetary policy in 40 years, Reuters reported on Wednesday. In the FOMC statement, US Federal Reserve mentioned on November 2, "The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 3-3/4 to 4%. The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time."

"In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that were issued in May," a press release by the US Fed stated.

Some analysts are now speculating that the Fed can take up even more 'tempered increases of perhaps half a percentage point'.

In response to the rate hike, the US stock markets plunged sharply after Fed Chair Jerome Powell's remarks. S&P 500 was down by 2.50%, stood at 3,759.69 points, and Nasdaq Composite was down by 3.36%, stood at 10,524.80, Dow Jones Industrial Average was down by 1.55%, stood at 32,147.76 points, till last traded.

On the contrary, the US 2-year Treasury bond yield gained to around 4.628%, and the US 10-year Treasury yield was quoted at around 4.115%. Additionally, the US Dollar index quoted at 111.96, up by 0.71% today.