key takeaways
- The US central bank announced today that it would raise federal interest rates by 50 basis points.
- The decision brings rates to a range between 4.25% and 4.50%.
- Fed Chairman Jerome Powell said he expected to keep raising rates for a longer period of time.
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The Fed will only raise interest rates by 50 basis points, instead of the 75 basis points of previous months.
The Fed softens its approach to monetary policy
The Federal Reserve announced today that it would raise interest rates by 50 basis points.
Speaking at the Federal Open Market Committee (FOMC), the US central bank announced its decision to raise the federal funds rate by half a percentage point, taking it to 4.25% to 4.50%. He The decision to raise rates by only 50bp (instead of 75bp as usual in recent months) is worth noting, as it could signal a weakening of Fed monetary policy. However, the Fed chair Mr Jerome Powell indicated that he expected to continue raising rates at a slower pace for a longer period of time, which means that financial markets are likely to experience more trouble in the coming months.
Interest rates are one of the tools the Fed can use to fight inflation. By raising rates, the central bank makes borrowing more expensive, which in turn pushes investors to sell their riskier assets for a stronger US dollar. After coming under fire for not taking inflation fears seriously (Powell infamously declared in March 2021 that inflation would be “transitory”), the central bank moved aggressively over the course of 2022, first raising rates by 25bp in March. , then at 50 bps and finally 75 bps on multiple occasions.
However, the Fed’s newfound zeal in tackling inflation has caused new concern: that its aggressive monetary policy could push the US and its allies into a possibly long recession. United Nations recently issued a warning in that regard, claiming that the global economy could suffer from the Fed’s “reckless bet.” This has led investors in traditional finance and crypto to believe that the Fed could quickly reverse course on its monetary policy and start cutting rates again, an assumption commonly known as the “Fed pivot.”
While the Fed’s decision today could be a step in that direction, it doesn’t look like the central bank is going to start cutting rates any time soon. Powell today reaffirmed his commitment to bring inflation down to 2%, and while yesterday’s CPI showed a decline in the year-on-year inflation rate, it was still 5.1% above Powell’s stated target. “Our judgment today is that we are not yet in a tight enough policy stance,” he said, insisting that rates could remain high for a long period of time even after the central bank stops raising them.
Disclaimer: At the time of writing, the author of this article owned BTC, ETH, and various other crypto assets.
