The Fed meeting ended with a historic one-time rate hike of 0.5%. The last such increase took place more than 20 years ago.
This event was not unexpected, as the head of the Fed announced planned increases, so the reaction was predicted to be moderate. Nevertheless, cryptocurrencies and stocks gave rise immediately after the Fed’s announcement. There are 5 more rate adjustments coming this year. In March, there was a 25 basis point increase in rates, we recall that rates have not been adjusted by the Federal Reserve since 2018.
Rising inflation, due to the events taking place in the world: the ongoing war in Ukraine, sanctions against Russia, as well as a tough lockdown in China, left the Fed no choice in the fight. In March, the inflation rate reached 8.5% for the first time in 40 years; last year, a sharp rise in inflation was ignored, which many experts consider wrong, because at the moment the pressure of inflation is too palpable.
At a press conference by Fed Chairman Jerome Powell, held after the committee meeting, it was noted that “the Fed is acting quickly” in order to reduce inflation to a range of 2%.
Jerome Powell stated that a 75 point increase is not planned, rather a 25 point adjustment is being considered, ie. by 0.25%
The price of bitcoin (BTC) has dropped over 40% since the Fed announced its rate hike last November. After the March decision of the FOMC, bitcoin was trading in the region of $41,000, at the moment, BTC is trading below $40,000, its $31,142 at 10th of May 2022.
The Fed also said that the sale of assets in the form of securities and bonds from the balance sheet, which contains $9 trillion, will begin in June. The Fed has unveiled a plan to reduce the balance sheet: from June 1, it will invest less than it receives from the redemption of government bonds and mortgage-backed securities by $30 and $17 billion, respectively. In 3 months the Fed will invest $95 billion less per month than it receives from repayments. For the markets, this event may have negative consequences in the long run.
In addition to this, another interest rate hike will be discussed in June, the Fed predicts up to 1.9% by the end of 2022 and up to 2.8% by the end of 2023. Experts are not so optimistic in their forecasts and expect the rate to rise to 3-3.25% by the end of this year.
The main question on the markets right now is whether the Fed can achieve a “soft landing” for the US economy and slow inflation in such difficult times for the labor market and the deteriorating macroeconomic situation in the world.
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