European stocks, as well as U.S. futures, fell on Monday following the address of Federal Reserve Chair Jerome Powell at the Jackson Hole symposium, where Powell called for higher interest rates over the long term in an effort to combat rising inflation. Asian equities also declined while commodity-linked currencies such as the yen, the pound, and the offshore yuan displayed volatility.
Powell’s call for restrictive monetary measures contradicts analysts’ expectations of a reduction in U.S. borrowing costs in the coming year. This unexpected twist adds to investors’ frustration, along with the ongoing European energy crisis and China’s growth slowdown. According to Charles Schwab & Co. Chief Investment Strategist Liz Ann Sonders, once the targeted figure for the interest rate hike is reached, it will remain there for a while.
While the aftereffects of the Russia-Ukraine conflict and China’s COVID-induced factory closures persist, the dollar has begun showing signs of strengthening. The Bloomberg Dollar Spot Index reached a record hit last month as investors seek a buffer to protect against the ongoing market volatility.
Paul Christopher, head of global market strategy at Wells Fargo Investment Institute, commented on Bloomberg Television about the S&P 500 amid the ongoing situation. “We’re going to go back down below 4,000 here in short order. The Fed is going to remain aggressive until inflation’s back is broken.”