Fed Bumps Interest Rates By 25 Basis Points, Markets Jump
The Federal Reserve opted for another small interest rate hike, with both equities and crypto markets enjoying what they see off the bat
Federal Reserve Chair Jerome Powell | Brookings Institute/"Jerome Powell" (CC license)
In a widely anticipated move, the Federal Reserve moved to bump interest rates by a quarter of a percentage point Wednesday, extending a series of what markets hope will be continued slower-paced increases.
The US central bank ongoing geopolitical tensions, persistent, although hopefully plateauing, inflation and a need to reach maximum employment as reasons for a repeat 25 basis point increase.
The move marks the Fed’s ninth consecutive rate increase, a strategy it hopes will curb the highest inflation the country has seen in more than four decades, but markets fret over whether a soft landing is achievable
“The Committee will closely monitor incoming information and assess the implications for monetary policy,” Federal Open Market Committee (FOMC) members wrote in a statement at the end of their two-day policy meeting Wednesday.
“The Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.”
Bitcoin and ether were mixed on the news, with bitcoin gaining more than 1%, extending its banking-crisis fueled run, and ether losing 1.1%.
The S&P 500 and Nasdaq Composite indexes rallied slightly after the decision, rising about 0.4% and 0.5%, respectively, likely because markets had predicted the rate increase.
Recent stress in the banking sector has central bankers rethinking policy, Powell said during a press conference Wednesday.
“What I heard was a significant number of people saying that they anticipated there would be…some tightening of credit conditions and that would really have some effects on our policy,” Powell said.
“Remember, this [happened] 12 days ago… we’re trying to assess something that just is so recent, and it’s very difficult, there’s so much uncertainty.”
Fed Chairman Jerome Powell may be feeling better about another rate increase because the KBW Bank Stock Index, which tracks the 24 largest firms in the US, has been relatively stable over the past few days, Noelle Acheson, author of Crypto is Macro Now and former head of market insights at Genesis, said.
“Some are interpreting this as greater reassurance that there won’t be ripple effects, but I disagree — the fact that the index is not going up could hint at a ‘wait and see’ stance, with ripple effects already priced in after the brutal drop so far this month,” Acheson said.
Another option for the Fed is to leave rates as they are for some time. Powell gave few hints as to his expectations, but he did say that market participants pricing in rate cuts this year are likely wrong, noting that FOMC participants “don’t see rate cuts this year,” and stressing twice in response to questions, “that’s not our expectation.”
As to the probability of a so-called “soft landing” for the economy, Powell said it was too early to say if there’s any change to his assessment. “I do still think, though, that there’s a pathway to that,” he said.
“That pathway still exists, and we’re just trying to find it.”
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