Major stock markets around the world are plummeting, after the European Central Bank and Bank of England both announced to raise interest rates by half a percentage point, adding to worries over high inflation, and a slowing economy.
The U.S. Federal Reserve approved an interest rate hike of 0.5 percentage points, signaling further rate hikes next year. The Frankfurt-based European Central Bank and Bank of England both followed suit with hikes of 0.5 percentage points.
Christine Lagarde, President, European Central Bank: “The Governing Council today decided to raise the three key ECB interest rates by 50 basis points. And based on the substantial upward revision to the inflation outlook, we expect to raise them further.”
Andrew Bailey, Governor, Bank of England: “We expect inflation to start falling more rapidly, probably from the late spring onwards. But there is a risk that it won't happen in that way, particularly because the labour market and the labour supply in this country is so tight. ”
The European Central Bank is forecasting lower inflation rates in 2023. In the U.K., inflation hit a 41-year high of 11.1 percent in October before falling slightly to 10.7 percent in November. The Bank of England doesn't expect inflation levels to return to normal until early 2024. One market analyst says high inflation historically leads to falling economic indicators, and the world is already in a recession with further layoffs and rising unemployment rates ahead.
Sam Stovall, Chief Investment Strategist, CFRA Research: “I do think that we are headed for recession. History says that when we've had inflation this high, when we have seen year-on-year reductions in leading economic indicators and we have fallen into an earnings recession, and I think that is an increasing possibility that we have then fallen into an economic recession. ”
European stocks tumbled in response to the rate hikes, with German and French stock markets falling 3 percent and the Dow Jones plunging 787 points and the three major U.S. indexes closing 2 percent down. The TAIEX also fell over 250 points upon opening, with TSMC's share price falling NT$15. The New Taiwan dollar to U.S. dollar exchange rate also fell over 10 cents early in the day.