US Fed Hikes Rates Again, Dow Plunges 500 points, Asia Opens Lower

The US Federal Reserve hiked the benchmark federal funds rate again by 25 basis points, a move that was largely anticipated. The Fed also indicated that the rate hikes maybe drawing to a close and there could be another 25 basis points hike at best.

Following the hike, the Dow Jones Industrial Average dropped a whopping 500 points, while the S&P 500 saw deep cuts of 1.65%. Back in Asia markets opened lower with the Australian benchmark indices, the Japanese Nikkei and the Korean Kospi all lower in trade. Rate hikes do not augur well for stocks and commodities like gold as investors could move money from risky assets like stocks to safe sovereign debt.

"The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 4-3/4 to 5 percent," the US Fed said in a statement.

According to the statement the U.S. banking system is sound and resilient. "Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation. The extent of these effects is uncertain. The Committee remains highly attentive to inflation risks," the US Fed statement said. Indian markets are expected to join their Asian peers lower.

Meanwhile, the Bank of England may follow the US Fed in hiking interest rates later today. "UK inflation showing systemic contagion. Core is up 0.9% ...YoY back to highs of 6.2%. the surprise print was significant in both its magnitude n breadth. BoE may be pressed to follow ECB suit tomorrow amid this Inflation upside surprise. Had there been easing in inflation, the case of looking closer owing to market stress and some data weakness would have been there for BoE. But seems not any more. 25bp hike likely tomorrow by BoE too," Madhavi Arora, Lead Economist, Emkay Global Financial Services.