After an initially rosy reaction to the Fed’s interest rate hike Wednesday — the second of seven that are forecast for 2022 — investors have been wringing their hands over the central bank’s approach to curbing inflation, which could make borrowing more expensive for corporations and households.
Fed officials are attempting to raise interest rates at such a pace that it doesn’t completely smooth economic growth, a difficult balance to strike. If the economy cools too quickly, it could fall into a recession, generally defined as two consecutive quarters of decline.
Investors seem to be lacking in confidence that the central bank walk the line of reining in inflation without triggering a recession. Cboe’s VIX, known as “Wall Street’s fear gauge,” is up more than 98 percent year-to-date according to MarketWatch.
The unease has permeated bond markets, which pushed the yield on the 10-year US Treasury note past 3,185 percent Monday, its highest level since November 2018. Bond yields move inversely to prices.
In Asia, markets closed sharply lower the weight of China’s zero-tolerance covid restrictions continued to weigh on the region’s business activity. Hong Kong’s Hang Seng Index closed down 3.8 percent, while Japan’s Nikkei 225 gave up 2.5 percent. The Shanghai Composite index was virtually flat.
“The continuing impact of Beijing’s zero-Covid policy in China and concerns about the Fed’s next moves are helping to pile the pressure on markets,” Russ Mold, investment director at AJ Bell, said Monday in comments emailed to The Post. “The impact of Chinese restrictions was reflected in export growth hitting two-year lows in April — in effect back where we were near the start of the pandemic.”
European markets were in the red across the board, with the benchmark Stoxx 600 index sliding 2 percent in midday trading, as did France’s CAC 40 and Britain’s FTSE 100.
Oil prices retreated somewhat after Japan became the latest G-7 nation to ban Russian oil imports. Brent crude, the international oil benchmark, slid 2.5 percent to trade around $109.50. West Texas Intermediate, the US oil benchmark, fell 2.9 percent to trade around $106.50.