Interest rates have risen by 0.75 in the US, and Europe's Central Bank is holding an emergency meeting to discuss the market rout.
ABC News business reporter Sue Lannin has answered your questions on what this means for Australia.
Look back on how the day's events unfolded in our blog.
Key events
Live updates
By Jessica Riga
We'll wrap up our live coverage here
Thank you for joining us today! And thank you to everyone who sent in their questions as business reporter Sue Lannin helped unpack what the interest rate rise in the US means for Australia.
You can continue to stay up to date here on the ABC News website, and on our app (and if you haven't already, you can sign up to our business alerts to get the latest news delivered straight to you).
We'll see you next time!
By Jessica Riga
Here's a quick market update
The Australian sharemarket came off today's highs after the unemployment rate remained unchanged in May as more people looked for work.
The market saw a relief rally after the US Federal Reserve raise official interest rates by three quarters of a percentage point as expected overnight.
At 12:30pm AEST, the All Ordinaries was up 0.5 per cent to 6,822, while the ASX 200 index rose 0.3 per cent to 6,623.
Six out of the 11 industry sectors are higher today with real estate trusts and tech stocks leading the way.
The market jumped more than one per cent in the first hour of trade, tracking Wall Street higher.
The ASX is higher after four days of falls on worries rapid interest rises could cause a recession in North America.
Still, the market is down 5.6 per cent for the week.
The best performer is artificial intelligence firm Appen (+11.8 per cent) and the worst performer is share registry firm Link Administration (-10.1 per cent).
The Australian dollar eased back after the jobless stayed steady.
At 12:30pm AEST, it was trading around 70.16 US cents, up 0.2 per cent on the open.
By business reporter Sue Lannin
By Jessica Riga
Unemployment remains at 3.9 per cent, as labour market keeps strengthening
Australia's jobs market has continued to strengthen, with unemployment remaining at 3.9 per cent last month and underemployment falling to a 14-year low.
The latest monthly Bureau of Statistics figures estimate 60,600 extra people were employed in May.
The number of people considered officially unemployed increased by 7,800.
The relative strength of the jobs market has seen the underemployment rate fall significantly from 6.1 per cent to 5.7 per cent, which is the lowest it has been since August 2008.
By Jessica Riga
How much do Australian companies reply on US borrowing?
How much do Australian companies rely on US borrowing and how much will feed into Aus bank interest rates
-Martin
Hi Martin,
Thanks for your question. Here's business reporter Sue Lannin to break it down for us:
Australia does not have enough capital (or finance) to fund all of its investment needs. Australian companies issue new shares, which they then sell to investors on the ASX to raise money. They also sell corporate bonds. The corporate bonds are sold to local and overseas investors in different currenciesm, such as US dollars or euros.
So the companies have to pay returns based on the overseas interest rates. Banks also have to borrow some money from overseas investors like banks or insurers so that they can lend to borrowers. They have to pay interest on these loans, which are long term loans. Since the global financial crisis, Australian banks get more of their money from lending from deposits.
However, if interest rates are going up, then the banks' cost of borrowing is going up too. So that is their argument for passing on official interest rate rises. They want to keep their profit margins, so they want to make more money from lending, than they pay to borrow to fund their loans.
One of the issues is that banks may pass on interest rate rises to borrowers, but they may not pass them on in full to savers.
By Jessica Riga
By Jessica Riga
ASX comes off earlier high, Aussie dollar trims its gains
There's a distinct lack of graphs in the blog, so let's fix that.
ASX 200 has come off its earlier high following the unemployment figures. At 11:36am, it was up 0.5 per cent, to 6,633.
By Jessica Riga
Unemployment rate remains steady at 3.9 per cent
The unemployment rate has remained at 3.9 per cent.
In May, the number of employed people increased by 60,600, and the number of officially unemployed people increased by 7,800.
The increase in employment in May was the seventh consecutive increase in employment, following the easing of lockdown restrictions in late 2021.
It saw the participation rate jump from 66.4 per cent to 66.7 per cent, while the underemployment rate fell from 6.1 per cent to 5.7 per cent.
By Jessica Riga
Australian sharemarket rises more than 1 per cent in first hour of trade
By 11:12am AEST, the All Ordinaries index had risen 1 per cent, to 6,856, and the ASX 200 index had risen 0.9 per cent, to 6,659.
And the Australian dollar was buying around 70.30 US cents, up 0.4 per cent.
By Jessica Riga
Will the market go down further?
Will the market go down further? Or has it largely bottomed out?
-Person
Hi there,
Here's business reporter Sue Lannin:
A number of investment advisers, both globally and locally, think there will be more pain on global markets because higher interest rates will slow the economy and hurt confidence.
I spoke to Michael McCarthy from Tiger Brokers Australia earlier in the week. He believes it's not a good time to buy yet, because stocks are not at their lows. Some stocks could be considered expensive. Remember the Australian market reached a record high in April.
The Nasdaq Composite and S&P 500 have entered bear markets. And there is probably more pain to come here on the ASX. So seek some specific, independent professional advice in relation to your particular circumstances.
By Jessica Riga
Economist predicts a US recession 'within 12 months'
Betashares chief economist David Bassanese has warned the United States could experience a recession within the next year.
"Given stubbornly high US inflation and the Federal Reserve’s apparent determination to bring it down, I now foresee a US recession within the next 12 months," he said.
He says for markets that means a bear market could continue.
But is there some light at the end of the tunnel, according to Mr Bassanese:
"For investors, periods of US recession and associated bear markets can be difficult periods to endure. But the lesson of history is that markets do eventually bounce back.
"The Fed seems determined to learn the lessons of history and does not want to let supply side shocks and overly strong demand embed high inflation (and so also high interest rates) into the US economy to the same degree evident in the 1970s.
"Good buying opportunities will emerge in this period, especially in the now downtrodden growth/technology sectors which still offer strong long-term earnings potential and will benefit from an eventual return to lower inflation and steadier interest rates.
"And while value stocks (especially energy and resources) – could continue to do well in this high inflation environment, they will ultimately be vulnerable to a weakening in inflation and commodity prices as global growth slows."
By Jessica Riga
Australian share market opens higher following US central bank rise
The Australian share market has opened higher after the US central bank raised interest rates as expected.
Overnight the US Federal Reserve raised official US borrowing costs by three quarters of a percentage point to curb soaring inflation.
Investors are relieved that the Federal Reserve didn't make a bigger rate rise.
In early Australian trade, the All Ordinaries has gained 0.75 per cent, to 6,837, while the ASX 200, the top 200 companies index, has gained 0.7 per cent, to 6,647.Banks are doing well today with Bank of Queensland up 1.7 per cent.
Banks benefit from higher interest rates because they get more revenue from borrowers. But they've been hammered because of worries that rapid interest rate hikes can cause an economic downturn or a recession.
The Australian dollar has soared against the greenback. It rose more than 1 US cent overnight.
Its currently trading around 70.33 US cents, up 0.4 per cent.
Reporting by business reporter Sue Lannin
By Jessica Riga
What does this mean for the Australian cash rate?
What does this mean for the Australian cash rate?
-Jesse
Hi Jesse,
Thanks for your question. Here's business reporter Sue Lannin with the answer:
The rise in the federal fund rate puts more pressure on the RBA to raise the official cash rate again because the cost of money is going up globally. Central banks are beset by many global factors that they can't control such as global high inflation and the war in Ukraine which is pushing up commodity prices.
The RBA governor told the ABC's 7.30 program this week that inflation could reach 7 per cent by the end of the year. That's more than the RBA previously predicted. So he said we may well see official interest rates rising to 2.5 per cent. Both RBA governor Dr Philip Lowe and Federal Reserve chairman Jerome Powell are warning there is a lot of uncertainty ahead. So bunker down.
By Jessica Riga
What does this mean for my super?
So how does this affect my super ??
-Miss Ted
Hi there,
Here's more from business reporter Sue Lannin:
Super funds invest in stocks as part of their investment portfolio. So if the share market goes down then the value of your super fund balance will also fall.
But the cash component will go up at the moment because interest rates on deposits are rising. However, it may not be enough to offset the falls from your equity (stock) holdings.
By Jessica Riga
What does this mean for Australians?
Hi Jess, thanks for the updates.
But what does all this actually mean for Australians?
-Confused
Hi Confused,
Here's how business reporter Sue Lannin explains it:
Rising global borrowing costs affect everybody because the global financial system and economy are interconnected. The whole world is dealing with global inflation because of soaring commodity prices due to the war in Ukraine, the global supply chain squeeze, and pent up consumer demand as the world reopens from COVID-19 shutdowns.
Benchmark interest rates are set by central banks and they are used as an index for borrowing costs — e.g., for banks and governments. The US is the world's biggest economy so the influence of the Federal Reserve is huge.
Rising interest rates push up the US dollar, which is the world's "reserve" currency. Also commodities are priced in US dollars, so if the greenback rises so do commodity prices like gold, iron ore, and oil.
While that is great for Australia in terms of trade revenue, it costs more for Australian governments and companies to borrow from overseas because interest rates are rising everywhere.
So that's why the Reserve Bank had to put up rates, because 1. high global inflation saw borrowing costs go up and 2. high domestic inflation is making price rises unsustainable and hurting the economy.
The aim is to dampen demand and force prices down because there is less demand.
By Jessica Riga
What effect could this have on the ASX?
What effect could this have on ASX?
-Curious
Hi Curious, thanks for your question.
I'll hand the mic over to business reporter Sue Lannin:
The ASX SPI 200 is pointing to a small rise this morning. That's because investors pretty much expected a 0.75 per cent rate rise. Investors were relieved that it wasn't larger.
The ASX has had four days of falls on worries that aggressive rate rises in the US could cause a recession — that's two economic quarters of contraction.
It looks like investors may take a breather today from the selling and buy up some cheaper stocks. The ASX SPI 200 index is up 0.24 per cent to 6,622. And a reminder, trading kicks off in 10 minutes.
By Jessica Riga
Got a question?
Have a burning question about the interest rate rise in the US and what it means for you?
You can submit your questions and comments to our business reporter Sue Lannin by using the 'leave a comment' button.
By Shiloh Payne
Bank of England set to raise rates again as UK inflation heads for 10pc
The Bank of England looks set to raise interest rates again as it tries to tackle a UK inflation rate on course for double digits.
After the US Federal Reserve announced its interest rate hike, the big question for investors awaiting the BoE's June policy announcement at 9pm Thursday (AEST time) is the size of the increase.
Reuters is reporting that Financial markets are fully pricing in a quarter percentage-point increase in Bank Rate to 1.25 per cent.
But investors have put a nearly 50 per cent probability on a half-point rise by the BoE, something it has not done since 1995.
The BoE has already raised borrowing costs four times since December, when it became the first of the world's major central banks to increase rates after the COVID-19 pandemic.
Britain, more than many other rich nations, is facing a mix of high inflation and zero growth or a recession.
Its economy is already showing signs of a slowdown and will be the weakest among the world's big, rich countries next year, according to forecasts by the International Monetary Fund and the Organisation for Economic Co-operation and Development.
But inflation, which hit a 40-year high of 9 per cent in April, is set to surpass 10 per cent later this year, more than five times the BoE's 2 per cent target, according to the central bank's latest forecasts.
By Shiloh Payne
What are the investors saying?
US investor and businessman Jeffrey Gundlach and prominent investor Mohamed El-Erian have weighed in on the rate hike.
Here's what they had to say:
By Shiloh Payne
US Federal Reserve hikes key interest rate by 0.75pc
Here's the latest from our North America correspondent Carrington Clarke:
The biggest rate rise since 1994 and more to come. That’s the takeout from the latest move by the US’s central bank.
The Federal Reserve is attempting to slay the inflation beast and it’s using the only blunt instrument at its disposal, making borrowing money more expensive.
The Australian Reserve Bank might have spooked those with variable mortgage rates by hiking half a percentage-point last week, but the Federal Reserve has done one better. The three quarters of a percentage-point hike means the official short term rate is now between 1.5 and 1.75 percentage-points.
But, according to those who get to make the big call on rates, it’s likely there’s a lot more to come. The average expectations is that the rate will double by the end of the year.
Citi’s Global Chief Economist Nathan Sheets says the Federal Reserve has a tricky decision to make. Are they willing to accept higher inflation than their target rate (which is 2 per cent over the year) or risk driving the economy into dangerous territory.
“Are they willing to live with higher inflation? And, if so, then I think then maybe we can avoid a recession. If the answer to that is no, that they want inflation back down to target by the end of 2023 or early 2024, then I'd say yes, the recession is inevitable.”
By Shiloh Payne
Good morning
Interest rates have risen in the US overnight as the European Central Bank holds an emergency meeting after bond yields surged in recent days.
Hi there, I'm Shiloh Payne and I'll be taking you through the latest updates alongside business reporter Sue Lannin on what this means for Australia.
We're here to answer all of your questions on how this may affect you, so please use the comment button to get in touch.
