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The Australian share market has closed sharply lower on Friday, after Wall Street stocks tumbled in response to further interest rate rises to curb inflation.
Wednesday’s Federal Open Market Committee (FOMC) announcement and Fed Chair Jerome Powell’s post-meeting press conference were the focus of the week. Stocks were little changed until the release of the post-meeting statement. As was widely expected, the committee said that it was raising rates by 75 basis points. The statement referred to the FOMC taking cumulative policy tightening into account and being aware of the lagged effects of monetary policy, which markets took as a dovish signal, briefly pushing stocks higher.
However, Powell’s press conference took a hawkish turn. He said that the FOMC had revised its estimate of the terminal rate (the highest federal funds rate in the hiking cycle) up from its September projections, and he referred to the pace of hikes not being as important as the terminal rate or how long rates stay there. Notably, Powell stated that it is “very premature” to consider pausing rate hikes, and the S&P 500 Index finished the day down 2.50%.
On Friday, stocks wavered after the October employment report painted a mixed picture of the labor market. The Labor Department report showed that employers added 261,000 jobs to nonfarm payrolls, above consensus estimates, and revised its September jobs figure higher. However, the unemployment rate rose to 3.7% from 3.5% in September as the labor force participation rate moved slightly lower.
The FED and RBA seem to be holding their breath to get through the lag of their policy actions and now investors seem to be doing the same, waiting for the illusive pivot for some relief.
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