US Fed rate hike of 75 bps is highest in 28 years, how will it impact investors

New Delhi: Following spiraling inflation in the United States, the Federal Reserve has raised key interest rates by a whopping 75 basis points. It is the biggest hike in interest rates by the Fed in last many years. The inflation in the United States is hovering at a 40-year high of 8.6%.

The steep inflation numbers and Fed action to tame the price rise has already triggered speculations of looming recession. The stock markets are already in the red and the spill over effect is visible on other Asian & European markets. Moreover, analysts suggest that Fed may tighten the liquidity by raising interest rates by another 50 bps.

According to official data, the consumer price inflation has increased 8.6% year-on-year in May. The skyrocketing fuel prices & costly food are the main drivers of high inflation in US.

What Investors should know and do

The prolonged Russia-Ukraine armed conflict has thrown global economies into an uncertain mode and the impact of this is becoming increasingly visible now.

The US Fed has hinted that it is aiming for aggressive rate hikes this year. Reports suggest that another rate hike is looming in July. US growth forecast has also reduced to 1.7% for 2022 & 2023, as against earlier forecasts of 2.8% for 2022 & 2.2% for 2023.

The convulsions in US markets have a direct bearing on the global markets. In India, the rupee has become extremely volatile and it may test 78.55 levels soon.

The Indian markets though opened on good note on Thursday morning, on back of cheering in global markets over Fed action but as the day progressed, it plunged sharply in the red.

If the Fed continues its aggressive tightening of rates, chances are that recession may step in US. And, if the US markets get into bear mode, it will not only slower down global economy but will also adversely impact their markets.