May 7, 2022 – Fed raises rates; stocks plunge; more Chinese firms face delisting

Welcome to the May 7, 2022 issue of Business News Digest by Simple Finance and Economics. The highlights of this issue: The Federal Reserve said it would raise short-term interest rates by 50 basis points, U.S. stocks ended the week lower amid sharp swings, and the Securities and Exchange Commission expanded the provisional list of foreign firms that could be banned from trading and delisted from U.S. exchanges.

Fed raises rates

On Wednesday, May 4, the Federal Reserve said it would raise short-term interest rates by 50 basis points, or 0.5%. This was the first 50-bps rate hike after more than 20 years. The latest federal funds rate range stands at 0.75%-1%.

The rate hike comes as the Fed is trying to fight inflation at its highest level since the 1980s. Meanwhile, the latest job report released on Friday, May 6, shows unemployment remained at 3.6% in April, just slightly above the 50-year-low jobless rate of 3.5% in September 2019.

It is worth noting that the traditional “Phillips curve” hypothesizes a trade-off between unemployment and inflation, although that empirical relationship may not be stable, especially in the long run.

Stocks plunge

U.S. stocks ended the week lower amid sharp swings. On Thursday, May 5, the tech-heavy NASDAQ Composite Index fell almost 5 percent, bringing its year-to-date (negative) return to -22.2%, well within the territory of a “bear market”. As interest rates rise, companies’ financing costs increase, dampening their profitability.

More Chinese firms face delisting

On Wednesday, May 4, the U.S. Securities and Exchange Commission, under the requirement of the Holding Foreign Companies Accountable Act (HFCAA), expanded the provisional list of foreign firms that could be banned from trading and delisted from U.S. exchanges if they fail to meet U.S. auditing standards for three years in a row.

More than 80 companies were added to the list, including China’s e-commerce and tech giants JD.com and Pinduoduo, as well as state-owned enterprises China Mobile and Sinopec. Currently, more than 200 Chinese companies are listed and traded in the U.S.

The HFCAA was passed in 2020 against the backdrop of Chinese regulators’ repeated rejection of requests by the U.S. Public Company Accounting Oversight Board to audit Chinese firms listed on U.S. exchanges.

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