Powell Calls Fed’s 0.75% Rate Increase ‘Unusually Large,’ Warns of Slowing Economy

Central bankers predict elevated unemployment rates, prolonged higher prices and a slowdown in economic activity going forward

article-image

Jerome Powell, chair, Federal Reserve, Blockworks Exclusive Art by Axel Rangel

share

key takeaways

  • Fed officials opted to raise interest rates 0.75% and previews further hikes
  • All 18 meeting participants expect interest rates to hit at least 3% by the end of the year

The Federal Reserve announced a three-quarters of a percentage point increase in interest rates Wednesday, marking the sharpest rate hike since 1994. Central bankers also predict elevated unemployment rates, prolonged higher prices and a slowdown in economic activity. 

Overall economic activity appears to have picked up after edging down in the first quarter, Fed officials wrote in their statement released Wednesday at the end of their two-day policy meeting. Job gains have been robust in recent months, and the unemployment rate has remained low, the statement noted, but Russia’s invasion of Ukraine and ongoing supply chain issues have contributed to persistent inflation. 

“Inflation remains well above our longer run goal of 2% over the 12 months ending in April, total PCE prices rose 6.3%, excluding the volatile food and energy categories,” Fed Chair Jerome Powell said during a press conference following the release of the statement

Equities largely traded sideways following the release of the Federal Open Market Committee statement, with the S&P 500 losing 0.5% and the Nasdaq adding around 0.2%. 

“Markets loathe uncertainty and unpredictability,” Josh Olszewicz, head of research at Valkyrie Investments, said. “The 75 [basis points]-hike today represents both an acceleration of interest rates and potentially a higher target Fed fund rate between 2.75% and 3%.”

Bitcoin and ether extended their downward slide, in advance of the Fed announcement. 

“Digital assets have significantly correlated with US financial markets in recent months, both of which have continued to bleed lower,” Olszewicz said. “A decrease in downward volatility will only likely be achieved with a pause or reversal of the current Fed policy and direction.”

Central bankers expect the federal funds to end 2022 at 3.4%, up from their March estimate of 1.9%, the statement said. 

All 18 Fed officials who participated in the meeting expect the central bank to raise interest rates to 3% before the end of the year, economic projections from the meeting show. Members also lowered their gross domestic product expectations for 2022 from an expected 2% to 3.3% increase to a 1% to 2% increase.

Inflation has “surprised to the upside,” Powell, who long called the higher prices transitory, noted. 

Powell in May said central bankers expected to raise rates 50 basis points in June and July, before changing the narrative on Monday by signaling a 75 basis point increase. 

“When I offered that guidance at the last meeting, I did say that it was subject to the economy performing about in line with expectations,” Powell said. “By this point, we had actually been expecting to see clear signs of at least inflation flattening out and ideally beginning to decline.” 

Investors and consumers should not expect such large rate hikes going forward, but nothing is off the table, Powell said.

“Clearly, today’s 75 basis point increase is an unusually large one and I do not expect moves of this size to be common,” Powell said. “From the perspective of today, either a 50 basis point or a 75 basis point increase seems most likely at our next meeting. We will, however, make our decisions meeting by meeting, and will continue to communicate our thinking as clearly as we can.”

This is a developing story.

[stock_market_widget type=”accordion” template=”chart” color=”#5C37D2″ assets=”BTC-USD,ETH-USD,^GSPC,NDAQ” start_expanded=”true” display_currency_symbol=”true” api=”yf” chart_range=”1mo” chart_interval=”1d”]


Don’t miss the next big story – join our free daily newsletter.

Tags

Upcoming Events

HYATT REGENCY SALT LAKE CITY

TUES, OCT. 8, 2024

Guided by the expertise of Blockworks Research Analysts team, this one day event will feature senior leaders, entrepreneurs, and developers from across the crypto industry. Attendees will have the opportunity to participate in an immersive experience to explore the latest trends, […]

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research

hivemapper.jpeg

Research

We believe crypto market participants overlook Hivemapper’s fundamental potential due to a poor understanding of both the niche map data market and Hivemapper’s positioning relative to incumbents. Hivemapper’s token model catalyzes both a cost and product advantage via unmatched map freshness and near real-time accuracy, which is its wedge into a market characterized by stale data and high data collection costs. Its current and potential future product suite may represent one of the strongest possibilities for PMF in crypto today.

article-image

👨‍⚖️ SBF’s courtroom sequel: Plus, Coinbase’s legal loss was DeFi’s gain

article-image

Public mining companies have been acquiring sites, refreshing machine fleets and diversifying business models in preparation for the event

article-image

Exploit shows centralization can sometimes be an asset

article-image

The Fidelity Ethereum Fund, like other proposed ETH ETFs, seeks to stake a portion of its assets, according to the firm’s Wednesday registration statement

article-image

The DAO first voted on enabling SAFE transfers over a year ago