Last week, global stock prices sharply declined as it is highly likely that due to high inflation, interest rates in the U.S. and other Western countries will remain elevated for a longer period than expected.
On Wall Street, the Dow Jones fell by 1.9% last week to 33,963 points, while the S&P 500 dropped by 2.9% to 4,320 points, and the Nasdaq index fell by 3.6% to 13,211 points.
Investors were focused last week on the regular meeting of the U.S. central bank. As expected, Fed leaders kept the key interest rates unchanged.
However, most of them estimate that due to elevated inflation, another increase of 0.25 percentage points will be necessary by the end of the year, in the range of 5.50% to 5.75%.
Fed leaders’ forecasts also indicate that interest rates could remain at elevated levels longer than expected.
They estimate that next year, a reduction in interest rates could occur twice, two less than they expected in June estimates. Thus, next year, rates could be lowered by a total of 0.50 percentage points to 5.1%.
Inflation is easing, but not quickly enough. Fed leaders estimate that inflation could fall to 3.3% by the end of the year, a lower level than expected in June estimates, but still significantly above the Fed’s target level of 2%. Inflation could only reach that target level by 2026.
