The US Federal Reserve has announced an interest rate hike of 0.25%, marking the first increase in nearly two years. The move came as a surprise to many investors who had expected the central bank to maintain its accommodative monetary policy in light of the ongoing economic uncertainty caused by the COVID-19 pandemic.
The Federal Reserve also signaled that it plans to continue tapering its bond-buying program, which has been in place since the pandemic began. The central bank will reduce its monthly purchases of Treasury bonds and mortgage-backed securities by $15 billion each, starting in January.
The decision sent shockwaves through the stock market, with major indices experiencing a significant drop. The Dow Jones Industrial Average fell by 2.5%, while the S&P 500 and NASDAQ dropped by 2.0% and 1.5%, respectively.
Investors are concerned that the interest rate hike could lead to higher borrowing costs for businesses and consumers, which could in turn slow down the economic recovery. The announcement also raises questions about the future of the stock market, which has been on a record-breaking streak in recent months.
Some analysts argue that the rate hike was necessary to combat inflationary pressures, which have been building up due to supply chain disruptions and rising demand. However, others contend that the move was premature, given the ongoing uncertainty surrounding the pandemic and the potential for further disruptions.
The Federal Reserve has emphasized that it will continue to monitor economic data and adjust its policy as needed. However, the announcement has left many investors feeling uncertain about the future direction of the US economy and the stock market.