The European markets reacted as the Fed chair cautioned of “some pain” ahead in order to tackle inflation.

The European markets experienced another decline as US Fed Chair Jerome Powell hinted at higher interest rates. Major bourses and all sectors shed some percentages on Monday morning in reaction to Powell’s warning on increased interest rates. With tech stocks plunging more than 2%, German’s DAX index fell over 1.3%, France’s CAC 40 index shed about 1.6%, and FTSE MIB in Italy lost 1%. There are currently no figures from the UK markets as stocks are closed due to the bank holiday.

Specifically, Germany-based energy company Uniper fell to the bottom of the European index, losing more than 6%. On the other hand, online food ordering company Delivery Hero rose over 2.3%, pushing the food delivery firm to near the top of the benchmark.

European Markets Fall as Fed Chair Signals Increased Interest Rates

The European markets reacted as the Fed chair cautioned of “some pain” ahead in order to tackle inflation. Speaking at a top central bankers’ conference last week, Powell delivered a stern warning, noting that he expects the central bank to continue to increase interest rates. He added that the bank’s action would affect the US economy. In his words, the Federal Reserve will use its “tools forcefully” to address inflation which hit its highest level in 40 years at 10.01% weeks ago. The Chair added:

“While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”

In addition to the European markets fall, the Dow Jones Industrial Average also shed over 500 points shortly after the Fed Chair delivered his speech. European Central Bank board member Isabel Schnabel echoes Powell’s comments on inflation over the weekend. The board member agreed that the central bank must combat rising inflation aggressively. According to Schnabel, the bank needs to act swiftly, even if it involves moving the economies into a recession.

Fed Focuses on Pushing Inflation Lower

Generally, the consumer price index and the personal consumption expenditure price index are a mess. Other economic areas are also declining, with housing rapidly falling off. Experts are also expecting a hiring surge to cool off soon. Powell added:

“We are moving our policy stance purposefully to a level that will be sufficiently restrictive to return inflation to 2%. Looking into the future, the central bank leader added that “restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy.”

Powell’s comments have raised reactions from economists such as LPL Financial chief economist Jeffery Roach. Roach said the Chair’s statement explains that combating inflation is more important than supporting growth.

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