The Federal Reserve Open Market Committee today signaled its plan to increase interest rates this year, likely starting in March. The expectation that it would do that has already caused an earthquake on the stock market, and an increase of long-term yields. “Wall Street on Parade” website recalled yesterday what happened when the Fed did the same in 2018, as “it gently raised the Fed Funds rate by a quarter of a point on March 22, June 14, Sept. 27 and Dec. 20.” There was a near-meltdown of the stock market in the last quarter of the year: “The S&P 500 plunged 13.97% while the Dow Jones Industrial Average lost 11.8%. The Nasdaq went into a bungee dive in the fourth quarter, giving up 17.5%. The Nasdaq closed the full year down 3.9%.”
The squeeze is going to provoke a tsunami against emerging economies as well. When the Fed started tapering in 2013, “the impact on even the largest EM markets was quick and brutal as investors began moving dollars to ‘safe havens’ like U.S. Treasuries and out of EM investments,” Michael Moran writes for Al Jazeera. “So quick was the outflow of U.S. dollars from the Indian economy that the rupee fell by 15% in three months, forcing the Reserve Bank of India to raise rates.
