Inflation control is the responsibility of the Federal Reserve. Raising or lowering interest rates is one of its tools. As a result, the pace of the economy's growth may change. The Federal Reserve increased rates by 0.75% during its most recent meeting in July. It's a significant one-time boost.
Fed Chair Powell pledged to make at least one more significant rise. He declared that unless he sees a route to 2% inflation, he will continue to raise rates.We then received the July inflation data in August. Over the previous year, inflation rose by 8.5%. This fell short of the 8.7% market consensus. Market gains were recorded.
Why did equities, particularly tech companies, rise? Powell was thought to be bluffing by investors. The market started to speculate that the Federal Reserve will now only hike rates by 0.5%, rather than 0.75%, at its next meeting on September 21.
Stocks often rise when rates increase less than anticipated. Stocks with greater risk rise higher. This is the reason why tech equities have increased more recently than boring business stocks.
Friday marked a shift. Powell reaffirmed his call for strong rate action. He added that for a while, we should anticipate below-average growth.He also mentioned "pain" as a way to reduce inflation. Gains turned around. Riskier stocks, including technology, fell even farther when the market declined.