As the market had anticipated, the Federal Reserve announced a 75 bps interest rate increase. Though some think it might not work. The announcement was made at the meeting of the FOMC on Wednesday.
The Seriousness of the Current Inflation
It became the largest rate increase by the Feds since 2019. It shows how serious the current inflation is. In the wake of the recent move, crypto, stocks, and gold have all moved up.
It seemed like increased interest rates also means increased asset prices.
In the course of the past few years, the Federal Reserve usually just raised interest rates by 0.25%. For now, the Fed’s target fund was officially raised to 2.25% and 2.5%. That became the largest since the COVID pandemic began.
It is not likely that this will be the last rate increment as many think. Some think the Fed would change its strategy and increase economic growth. It was anticipated that it would confront the possible recession after the 75 bps increase.
But now, inflation is the Fed’s biggest priority. It is possible it sacrifices economic growth to combat inflation.
The Fed Chairman, Jerome Powell, emphasized at the meeting that the Reserve anticipates further increases. He said an unusually large increase might be in order at the next meeting. But it all depends on what report is gotten between this period and then.
The interest rate decision was announced before the GDP data’s publication. The US PCE index is also expected for Friday.
Optimism Against Recession
The Bureau of Labor Statistics showed last month that the inflation rate got as high as 9.1%. It amounts to a record rate of 40 years in spite of the numerous rate increases. The major components of the CPI are not showing any sign of reduced prices.
The Federal Reserve is said to be on a mission to get inflation back to 2%. Since the Feds claim the cause of inflation is increased demand, continuous rate increases are definite. This will eventually lead to a recession.
President Joe Biden was optimistic on the 26th of July that the country will not go into a recession. This is in spite of the contracting GDP figures when they are supposed to increase.
The crypto went green after the Fed announced the 75 bps rate increase. Bitcoin shot up by more than 8% within 24 hours and Ethereum did a huge 16%. Other top digital assets also increased tremendously.
Before the Fed announcement, the crypto market capitalization was almost less than $1 trillion. It was indicative of the selling pressure the market experienced. There was a prediction that Bitcoin would fall under $20,000 but it is currently worth $23,000.