The US Federal Reserve increased interest rates by a massive +0.75%, the largest rate hike since 1994!!!
To be clear, this was in-line with the market's expectation after last week's crazy high inflation numbers. So, why were investors left with a bloody nose? Chairman Jerome Powell did not rule out another 75 basis point rate hike at the next meeting. This view contrasts the last few months of commentary, which suggested a hike greater than 0.50% was off the table.
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Experts see this as a major red flag and believe that such steep rate hikes may push the US economy into a recession by mid-2023. PS – during a recession, companies make fewer sales, employees lose their jobs, and the country's overall economic output declines. Recession plus higher interest rates is spooking markets. This is bad news for India too.
The US is India's largest trade partner. Indian exports to the US stood at $76.1 billion in FY22, +47% over the previous year. Several industries like IT, pharma, and chemicals earn a bulk of their revenue from the US. Any slowdown in the US would hurt business back home. That's why they say – When America Sneezes, the World Catches Cold.
