Fear Index Soars 74% in a Day... 'Santa Rally' Disappears with Powell's Hawkish Remarks

Investors' fear sentiment gripped Wall Street following the 'hawkish (preference for monetary tightening)' remarks by Jerome Powell, Chairman of the Federal Reserve (Fed).

On the 18th (local time), the Chicago Board Options Exchange Volatility Index (VIX), known as Wall Street's fear index, surged 74.04% from the previous day to 27.62. The VIX index, which had been moving stably, spiked to the 30-point level after the Fed's announcement. As the Fed hinted at a reduction in the rate cut range for next year, investors' concerns have spread.

Fear Index Soars 74% in a Day... 'Santa Rally' Disappears with Powell's Hawkish Remarks

The sharp decline in the three major New York Stock Exchange indices on this day is in the same context. The Fed implemented a 0.25% point rate cut on this day but drastically lowered the rate cut range for next year from the existing 1% point to 0.5% point. Market participants expected more rate cuts next year considering the strong recovery of the U.S. economy. However, as Jerome Powell, Chairman of the Fed, stated that the current situation is "a new phase and will be cautious about further cuts," the market was shocked.

Experts believe that the policy uncertainty of Donald Trump's second administration has made the Fed cautious. It is expected to have a significant impact on the foreign exchange market immediately. If the strength of the US Dollar intensifies, the won-dollar exchange rate may rise further.

Kim Eun-jung, kej@hankyung.com