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Concerns about a U.S. recession are growing, expectations are that the Bank of Japan, which raised interest rates by 25 basis points last week, may enter a rate hike cycle, and heightened tensions in the Middle East have triggered Black Monday in global markets.
With these developments, markets are expecting the Federal Reserve to hold a special meeting within a week.
U.S. traders are pricing in a 60% chance that the Federal Reserve will hold a special meeting within a week and raise interest rates by 25 basis points.
Bloomberg emphasized that in the environment where the Federal Reserve announced last week that it would keep interest rates unchanged, it would be a real “worrying sign” if it did not have to wait until September to raise interest rates.
Also spread to other regions
Earlier concerns about the risk of high inflation were quickly replaced by speculation that growth would stagnate.
Fears of a recession if the Federal Reserve does not start lowering interest rates from their highest levels in more than two decades led to a sharp wave of selling in global markets today.
Aggressive easing expectations spread to other regions, with German bonds falling to their lowest level in nearly seven months as markets expect the European Central Bank to follow the Federal Reserve in cutting interest rates.
When has this happened before?
The Fed has previously held unscheduled meetings and cut interest rates during times of crisis.
Due to the negative economic impact of the coronavirus pandemic, the Federal Reserve lowered its policy rate to a range of 0-0.25% at its special meeting in March 2020.
In 2008, the bankruptcy of Lehman Brothers shocked the financial markets and the Federal Reserve cut interest rates by 50 basis points.
The Fed made extraordinary rate cuts in 1994, 1998, 2001 and 2007.
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