In line with market expectations, the Federal Reserve (Fed) decided to raise interest rates by 75 basis points, which was announced on Wednesday at 20:00 Polish time. The decision, along with statements by the governor of the institution – Jerome Powell – during the press conference, weakened the dollar, strengthened the US stock market and other risky assets, including Bitcoin.
The Fed raises rates for the third time and announces a third rate hike
Federal Reserve officials raised interest rates by 75bp for the second month in a row and chairman Jerome Powell suggested a similar move at the next meeting in September, depending on what macroeconomic data come out of the market.
Faced with the hottest cost pressures in 40 years, policymakers raised the federal funds rate target to a range of 2.25% – 2.5% on Wednesday. This means that the total hike from June to July was 150 basis points – the most since Paul Volcker’s fight against inflation in the early 1980s.
– While another extremely large hike could be appropriate at our next meeting, it will depend on the data to be released by then Powell said at a press conference following the two-day meeting in Washington.
The Fed will also slow down the pace of increases at some point, the institution’s governor added. In addition, Powell said the bank would set monetary policy at every meeting and not, as it did recently, give clear indications of the size of the next rate hike.
These comments triggered a surge in US stocks during Jerome Powell’s speech, and Treasury yields fell with the dollar.
The Federal Open Market Committee (FOMC) “is firmly committed to bringing inflation back to the 2% target,” the statement said, echoing earlier words about inflationary risks. The FOMC vote, in which the two new members took part – vice-chairman for oversight Michael Barr and Boston Fed president Susan Collins – were unanimous. Barr’s joining the council earlier this month made it a full squad of seven governors for the first time since 2013.
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Violent rate hikes due to accelerating inflation
Criticized for misjudging inflation and slowness to respond, officials are now strongly increasing interest rates to cool the economy, even if it risks recession. Higher rates are already having an impact on the US economy. The effects are particularly visible on the housing market, where sales slowed down.
While FOMC officials argue they can provide the economy with a “soft landing” and avoid a sharp slowdown, many analysts say a recession with rising unemployment will be needed to significantly slow down price growth.
The FOMC noted on Wednesday that “recent spending and output indicators have eased” but also pointed out that job growth “has been solid in recent months and unemployment has remained low.”
Powell said he did not believe the economy was in recession, citing “a very strong job market” as evidence.
The recent hike puts rates close to the Fed’s estimate of the neutral level – a level that neither accelerates nor slows down the economy. Forecasts from mid-June showed officials expect rates to rise to around 3.4% this year and 3.8% in 2023.
Investors will now observe whether the Fed will slow down the pace of rate hikes at the next meeting in September, or whether strong price increases will put pressure on the central bank to continue its hikes to a large extent.
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The dollar is down. On the other hand, Wall Street, cryptocurrencies and raw materials are growing
Shares rose and bond yields fell with the US dollar after Jerome Powell said the Federal Reserve would slow down the pace of interest rate hikes at some point.
The market reacted with a stronger dollar to Powell’s first words. It took a while, however. In the following minutes, when the chairman mentioned that he was seeing some signs of a slowdown in the economy, the dollar went on the defensive again – commented TMS Brokers analysts.
The S&P 500 grows by almost 3% and returns above the level of 4,000. points, Bitcoin gains 7.6% during this time and breaks the level of 23 thousand. hole. Gold gains 1.3% and crude oil gains 2.5%. The dollar is losing 0.8% to the weighted basket of currencies (DXY index), but remains at the level of local support
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