ASX NEWS LIVE | ASX 200 to Fall Ahead of US Fed Interest Rate Decision

Market Overview

On Tuesday, the S&P/ASX 200 Index sank 1.2%, or more than 80 points, to 6,994.2 points. Mining stocks saw deep losses as companies like BHP Billiton decreased by 1.8% and Rio Tinto dropped by 2.3%. The financial sector was also problematic, with the Commonwealth Bank falling by 1.5%. Energy stocks also lost ground, with Santos decreasing by 2.9% and Woodside Petroleum retreating by 1.9%.

US Inflation Data

The market's reaction was mainly driven by the United States's latest inflation data, which indicated that consumer prices continued to rise in May. The data raised concerns among investors that the US Federal Reserve would be pressured to intensify its interest rate hikes, slowing economic growth in the country and impacting global markets.

Interest Rate Decision

The US Fed is set to announce its interest rate decision later this week, with most experts expecting a 50 basis point hike. However, the latest inflation data has increased speculation that the Fed may opt for a more aggressive 75 basis point increase.

Impact on the ASX

If the Fed raises rates by 75 basis points, it could negatively affect the Australian market, as a higher interest rate in the US may entice investors to move their money out of Australia in favor of higher returns in the US bond market.

Economic Outlook

Economists generally agree that the US economy is headed for a recession, if it isn't already in one. Furthermore, economists predict that the Australian economy could also enter a recession toward the end of the year because higher interest rates reduce economic growth and consumer spending.

Expert Commentary

James Rosenberg, an economics professor at the Australian National University. He doubts that a recession is imminent, but he pointed out that the risk has increased markedly. "The Reserve Bank of Australia is raising interest rates, and the Fed is raising interest rates. That's going to slow down economic growth," he said. "The risk of a recession has definitely increased."

Conclusion

The ASX 200 is expected to remain volatile ahead of the US Fed's interest rate decision. If the Fed raises rates by 75 basis points, it could negatively impact the Australian market. However, the full extent of the impact will depend on a range of global economic factors.