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European markets descend; investors respond to Fed decision

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European markets might plunge at the opening on Thursday as investors react to the latest monetary policy decision from the U.S. Federal Reserve.

On Wednesday, the central bank signaled that the U.S. would raise its key interest rate for the first time in a decade. The move will likely trigger a wave of selling as investors anticipate higher borrowing costs and tighter monetary policy.

According to data from IG, the U.K.’s FTSE index might open 147 points lower at 7,324, while Germany’s DAX down 378 points at 15,072. France’s CAC 40 down 176 points at 6,805 and Italy’s FTSE MIB 675 points lower at 25,908.

The U.S. Federal Reserve on Wednesday decided to keep its benchmark rate unchanged. Still, it indicated it could raise borrowing costs in June or even sooner, reigniting fears of a global economic slowdown and sparking a sell-off in markets.

The Fed chief, Jerome Powell, said the U.S. economy was in a “muted” state, but the Fed still saw an increased need for more accessible monetary policy. The Fed’s policymakers made points in a statement after the announcement. They said that as unemployment dropped and inflation ticked up, the Federal Reserve will continue to evaluate the data and likely will be patient in deciding when to adjust policy.

Even after the Federal Reserve pointed to an interest rate hike soon, U.S. stocks rallied. But overnight sentiment has changed.

U.S. stock futures dropped Wednesday night; futures tied to the Dow erased earlier gains and fell 399 points or 1.18%. S&P 500 futures and Nasdaq 100 futures fell 1.36% and 1.58%.

On Thursday, Asia-Pacific markets dropped across the board overnight. Japan’s Nikkei 225 dropped 3.4%, while the Topix was 2.4%. In South Korea, the benchmark Kospi fell 3.14%, and in Hong Kong, the Hang Seng index dropped 2.57%. Chinese mainland shares also fell.

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