The US central bank Federal Reserve has raised the interest rate. Due to this news, there was a great rally in the US stock markets on Wednesday. On Thursday, the Indian stock markets also opened with great momentum. At 12:15, the Sensex was at 57,886 points, up 1.88 per cent or 1069 points. The question is, why did the stock markets boom due to the rise in interest rates in America?
Federal Reserve Chairman Jerome Powell has said that the interest rate will increase six more times this year. He has said that the US economy is very strong. It is able to deal with strict monetary policy. Experts say that Powell’s statement of strength in the US economy has had a good effect on the stock markets. This has increased the confidence of the markets.
The Federal Reserve raised the interest rate for the first time since 2018. Markets have already digested the rate hike, as it was expected in advance. The Fed has said it will raise interest six more times this year. Traders believe that the Federal Reserve’s stance is not as aggressive as was expected. This is because inflation in America is at a 40-year high.
Read also: Explained: What will be the effect of increasing the interest of the Federal Reserve in America on India?
After this statement of Powell, there was a lot of short covering in the US stock markets, due to which the markets closed up. On Wednesday, the main indices of the US market closed with great gains. The S&P 500 ended the session up 2.2 per cent. The Nasdaq gained 3.8 percent. The Dow Jones closed with a gain of 1.6 percent.
Here, on Thursday, there was short-covering in India as well. After a long time, there was a change in the attitude of foreign institutional investors. They were seen shopping. The softening of crude oil has also boosted the confidence of the markets. Foreign institutional investors have been selling in the Indian markets for the past few months. During this period, domestic institutional investors bought and saved the markets from falling.
The strengthening of the US economy is good news for the economies of the world. The reason for this is that America has a large share in global trade. Weakness in the economy has an impact on US imports. This leads to a decline in global trade. Exports of many countries, including China, decrease.
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