Cryptos, Stocks Post Short-lived Rally on Fourth Straight 0.75% Interest Rate Increase

The Fed’s forward guidance statement did not provide clarity about what December might bring

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Federal Reserve Chair Jerome Powell | Source: Brookings Institution/"Jerome Powell" (CC license)

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The Federal Reserve doubled down on its quantitative tightening strategy Wednesday, bumping interest rates by three-quarters of a percentage point for the fourth straight time. 

The US central bank cited slowing consumer spending and production levels. The move marks the Fed’s sixth consecutive rate increase, a strategy it hopes will curb the highest inflation the country has seen in more than four decades. 

“The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time,” Federal Open Market Committee (FOMC) members wrote in a statement at the end of their two-day policy meeting Wednesday. “In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”

Overall economic activity appears to have slowed a bit, central bankers wrote, pointing especially to Russia’s ongoing invasion of Ukraine. 

In June, when the central bank opted to raise rates 75 basis points for the first time this cycle, Fed Chair Jerome Powell called the move “unusually large.”  But if current conditions persist, higher increases could become the norm. 

Crypto markets rose initially on the news, which analysts say was mostly priced in. Bitcoin edged higher 0.7%, while ether posted a 01% gain. The S&P 500 and Nasdaq rallied 0.6% and 0.4%, respectively, immediately following the report, before paring back gains to lose 2.5% and 3.4%, respectively.

“This 75bps rate hike was largely expected, and the markets have reacted accordingly,” said Steven McClurg, co-founder and chief investment officer at digital asset fund manager Valkyrie Investments. “Language in today’s announcement is also clear that the Fed does not want to limit themselves from raising another 50 or 75bps in December; and a target rate of five percent by the end of Q1 makes absolute sense.”

Tuesday’s Job Opening and Labor Turnover Survey (JOLTS) pushed stocks lower when data showed job openings rose in September. 

“The JOLTS report implies that labor market tightness is not easing materially, and that means consistent wage pressures,” said Tom Essaye, founder of Sevens Report Research. “Consistent wage pressures support inflation, and since the Fed is only focused (for now) on inflation, that’s why JOLTS caused a drop in stocks.”

Markets were happy the Fed moved as anticipated, but related gains have historically been short-lived, Nicholas Colas, co-founder of DataTrek Research, said. 

“Over the last three FOMC meetings, the S&P 500 has averaged a +0.8 percent gain on the day of the announcement but lost those gains on the next trading day and been flat over the next week,” Colas said. 

The Fed has made clear it’s prepared to continue raising interest rates as needed in an effort to stem record inflation in recent memory. 

“Today, we’ve just moved, I think probably into the very, very lowest level of what might be restrictive. And certainly in my view, in the view of the committee, there’s a ways to go,” Powell said in September after the central bank locked in its third 75 basis point increase.

Futures markets were predicting a 51.7% chance of a 50 basis point increase in December, according to CME Group data.

“Markets want clarity,” Colas said. “ [Powell] can’t really provide that yet.”


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