Overnight, the Federal Reserve issued comments with a hawkish tone that could have unsettled the London stock market.
“Recent data on employment growth and inflation have exceeded expectations,” stated Powell during a presentation at the Stanford Graduate School of Business. Powell cautioned that reductions in interest rates will be considered only when the policymakers are more assured that inflation is consistently decreasing towards the Federal Reserve’s target of 2%.
The FTSE 100 experienced a significant decline following remarks from a Federal Reserve official indicating that the US may not lower interest rates this year.
The fall in Britain’s major stock index, by 1%, occurred at the start of trading in London. This came after Neel Kashkari, President of the Minneapolis Fed, expressed doubts over the necessity of reducing borrowing costs. Kashkari, who had previously anticipated two interest rate cuts this year, noted that ongoing stagnant inflation levels might eliminate the need for such cuts.
These statements led to a sharp decrease in stock values, with the FTSE 250 also seeing a 1% drop.
Further adding to investor concerns are the impending US employment figures. Stronger-than-expected job numbers could challenge the likelihood of interest rate reductions.
Sophie Lund-Yates, a leading equity analyst at Hargreaves Lansdown, observed that the FTSE 100 has regressed due to the pessimistic outlook from the US. She mentioned that inconsistent messages regarding potential interest rate cuts this week have placed much importance on the upcoming data. According to her, a softer job market might support the view that the economy is stabilizing.
