Investors hoping for an early dose of Christmas joy from the US central bank were left disappointed as the Federal Reserve signalled further rate rises to come next year.
US markets slipped back as Fed chair, Jerome Powell, said that more data was needed before the central bank would meaningfully change its view of inflation.
There had been hopes that the recent weaker-than-expected US CPI print would prompt a change in the messaging from Powell but as ING Economics pointed out: “While the market may view inflation as being in its death throws, the Fed certainly does not.”
The news came as the Fed raised rates by an as expected 50bps but said ongoing increases "will be appropriate" in order to help bring inflation down to the Fed's target level.
John Leiper, CIO of Titan Asset Management said: “Equities are responding accordingly, selling off on the news. Forget the Santa rally… the Fed looks more like the grinch this Christmas.”
The interest rate baton has passed to Europe today with Bank of England governor, Andrew Bailey, now cast as the saviour of Christmas as investors hope the much-touted Santa rally materialises.
But it will take a serious change of tack from the BoE and the ECB to lift sentiment after the Fed’s move with both expected to increase interest rates by a further 50bps today.
The move by the BoE would be a reduction from the 75bps hike last month and is likely to show the Monetary Policy Committee remains split on the future path of rates.
“As has been the case since the start of this hiking cycle, MPC members are likely to diverge on the size of the rate hike, with the more dovish members (Tenreyro and Dhingra) likely preferring a smaller increase (or even a pause), while the more hawkish ones (Mann and possibly Haskel) are likely to support another 75bp hike” UBS economist Anna Titareva commented.
Two central banks have already acted today with The Swiss National Bank raising its key interest rate by 50 basis points as expected, its third hike this year while Norway has lifted its benchmark interest rate by 25 basis points to 2.75% on Thursday, again as expected.
Over to you Andrew Bailey and Christine Lagarde.