Markets mixed as Fed raises rate, escalation of trade war could “take a terrible toll”

Markets were mixed on Wednesday.

The STOXX Europe 600 rose 0.3 percent and the Nikkei 225 rose 0.4 percent.

However, the S&P 500 reversed early gains to end 0.3 percent lower.

The Federal Reserve announced a 25-basis point hike in its benchmark interest rate at its monetary policy meeting on Wednesday.

“The Fed is highly likely to raise interest rates 25 basis points per quarter until next summer, when the target rate will reach the committee’s estimate of neutral,” said Eric Winograd, senior economist at AllianceBernstein.

Trade continues to be a concern for markets.

UBS analysts said that if US tariffs on Chinese imports rise to 25 percent as threatened by US President Donald Trump, “the hit to the economy is substantial and comes quickly”, adding that the higher rates would “take a terrible toll on activity”.

In an alternative scenario analysed by ECB economists where the US raises tariffs on all of its imports by 10 percentage points and its trading partners retaliate with an equivalent tariff increase on their US imports, the US economy would shrink by around 2 percent in the first year compared with a situation in which nothing changes.