On July 29, Dow suffered a major drop of around 900 points due to turmoil in the overall stock market. The drop comes on the same day as the Federal Reserve announced its decision to keep the Federal rate steady due to the ongoing war in the Middle East against Iran.
Fed Reserve Keeps Interest Rate Steady Due to US-Iran War
On July 29, the Federal Reserve revealed its decision after a discussion of a 2-day FOMC meeting. In the latest press release, it has revealed that the federal funds rate will stay as it is between 3.50%-3.75%. Amid the heavy sell-off in the global stock market, this news has declined Dow by around 2% in the last 24 hours.
This was the major FOMC meeting after new Federal Reserve chairman Kevin Warsh took charge of the agency. There are some positive developments in the economic data, such as low inflation recorded in the previous month. However, the bloodshed in the Middle East has created disruption in the global energy market, and due to this, oil prices have surged over 10%.
Ahead of the FOMC meeting, there were different speculations around the Fed rate cut. For example, interest rate futures highlighted around a 70% chance of no change and a 25%-30% chance of a small hike.
The official announcement of a steady interest rate has disappointed many traders, as they were expecting a major cut in the interest rate due to economic challenges in the financial markets.
The Federal Reserve Board released an official statement, saying that “The Committee decided to maintain the target range for the federal funds rate at 3-1/2 to 3-3/4 percent, in support of the Federal Reserve’s dual mandate. The Committee is continuing its policy of maintaining ample reserves in the banking system. Economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East. Productivity growth and capital investment are strong. Job gains have kept pace with the workforce, and the unemployment rate has changed little.”
He added further, “Inflation remains elevated relative to the Committee’s 2 percent goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy. The Committee will deliver price stability.”
According to market experts, the Fed’s decision today is more about a temporary shock instead of their aggressive tightening strategy. The decision of steady Fed rate cuts comes after the massive selloff across the stock market, mainly in rate-sensitive sectors like tech and real estate. Some leading chipmakers, including Nvidia and AMD, suffered sharp declines. This has also created turmoil in global AI trade.
Iran Launches Surprise Strike on US in Jordan
On July 29, the world witnessed another major escalation in the Middle East. According to the latest report, Iran’s Revolutionary Guard has launched many ballistic missiles at U.S. military bases in Jordan. However, U.S. and Jordanian defense systems have managed to intercept the missiles.
According to the officials, there were no casualties or major damage recorded at the US base. Jordan’s air defenses also shot down many missiles. However, this missile attack has created panic in the financial world and investors, as it could create disruption in the global energy market and affect the overall financial world.
The missile strike came after the US-Saudi military launched new operations against Iran-backed militias in Iraq. US President Donald Trump has also shared his statement on Iran’s surprise attack in strong words. He promised to “hit Iran hard” with a response attack.
This attack and Trump’s statement have made investors nervous about its impact on oil supply, as it would lead to major disruptions. After this attack, oil prices jumped by more than 7% amid the fear in investors that the conflict could spread and affect the Strait of Hormuz, which is a major route for global oil shipments.
The combination of the Fed’s decision to hold rates steady and geopolitical issues could trigger a risk-off selloff. The S&P 500 and Nasdaq also dropped. According to data, the S&P 500 and Nasdaq have dropped by around 1%. The dollar is also losing its value rapidly amid economic challenges.
Amid the uncertainty in the US stock market, investors have started investing in other safe assets like U.S. Treasuries. Traders are also closely monitoring US reactions to Iran’s surprise attack. They are also hoping for de-escalation and a ceasefire in this war.
