Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Global markets are rattled today after the US central bank signalled it is ready to raise interest rates as it battles the highest inflation rate in forty years.
Federal Reserve chair Jerome Powell struck a notably hawkish tone at last night’s press conference, saying officials were minded to raise interest in March, and didn’t rule out an aggressive string of interest rate rises at coming meetings.
Powell told reporters there was “quite a bit of room to raise interest rates without threatening the labor market”, as it also prepares to shrink its balance sheet which has swelled to $9trn .
He also warned that inflation remains above the Fed’s long-run goal and supply chain issues may be more persistent than previously thought.
Investors are bracing for a sharp rise in interest rates this year, after Powell hinted that the Fed could tighten policy faster than in its last hiking cycle, with growth and inflation are higher than in 2015.
As Powell put it:
We are going to need to be, as I’ve mentioned, nimble about this. The economy is quite different this time.
Powell’s hawkish comments wiped out Wednesday’s Wall Street rally, and has sent shares reeling in Asia-Pacific markets to their lowest level in 15 months.
“The Fed’s gone from being the market’s best friend, to a possible enemy,” said Kyle Rodda, analyst at the online trading platform IG in Sydney, adding that the Fed was set on “bringing inflation down, rather than protecting asset prices”.
Japan’s Nikkei has led the way, plunging more than 3% while the Kospi in Seoul found itself in similarly negative territory. The market in Hong Kong was off 2.5% and Sydney shed nearly 2%.
MSCI’s broad gauge of regional markets outside Japan fell more than 2% to its lowest level since November 2020.
European stock markets are set to drop sharply, as January’s market turbulence continues.
Also coming up today
We find out how the US economy fared in the final three months of 2021, when the first estimate of GDP for October-December is released.
Economists predict that growth sped up, to an annualised rate of 5.5%, from 2.3% in Q3, before the Omicron variant hit at the end of the year
In the UK, car production has fallen to its lowest level since 1956, as rising energy costs and computer chips shortages hurt the recovery.
- 7am GMT: GfK survey of German consumer confidence
- 11am GMT: CBI distributive trades survey of UK retail
- 1.30pm GMT: US Q4 GDP report
- 1.30pm: US weekly jobless figures
- 3pm GMT: US pending home sales