European stocks posted their biggest daily decline in two weeks yesterday as investors weighed in on the prospect of a 50 basis point rate hike by the US Federal Reserve. The reason was the comments of its President Jerome Powell, who mentioned the need for an aggressive monetary policy. The pan-European STOXX 600 ended yesterday’s session down 0.77%, while the real estate and high-tech sectors were hit hard. The US Federal Reserve may need to raise interest rates more than expected and is poised to take bigger steps if upcoming economic data calls for tighter inflation control measures. The president of the bank mentioned this during his testimony before the competent Senate Banking Committee. Yesterday in London, the FTSE 100 closed at -0.13%, the DAX in Frankfurt -0.60%, the CAC 40 in Paris -0.46%, the FTSE MIB in Milan -0.67% and the IBEX in Madrid -1. 05%. The reaction in the US market was similar, with the Dow Jones and S&P 500 falling 1.2% and 1% respectively before closing yesterday. Yesterday, the euro fell 1% against the dollar to $1.0572.

It is worth noting that Powell’s statements on the other side of the Atlantic were made before the meetings of the Federal Bank and the European Central Bank in the coming days, and market participants are now preparing for another round of higher borrowing costs. Earlier in the week, ECB President Christine Lagarde stressed the need for further policy tightening to tame the “inflation monster,” as she described it. “Markets are rethinking their interest rate outlook in the US and Europe,” said Patrick Armstrong, chief investment officer at Plurimi Wealth Group. “Economics around the world have been very resilient since the beginning of the year and while these developments are seen as positive for growth, they have a negative impact on inflationary pressures and all central banks are being asked to take action.” Finally, according to the ECB survey, inflationary expectations of euro zone consumers weakened in January, but wage growth expectations continued to strengthen.