The Market has been debating this week if the FED would follow through and raise interest rates as promised after the recent Banking crisis
The U.S. Federal Reserve has announced a 25 basis point increase in its benchmark fed funds rate to a target range of 4.75%-5%, which is in line with market expectations.
The price of bitcoin (BTC) rose by approximately $250 to $28,700 immediately following the announcement reports Coindesk. At the time of writing this article, the price of Bitcoin is currently at $27,429 25.
The Fed’s Federal Open Market Committee (FOMC) acknowledged recent bank system troubles in its statement accompanying the rate hike, stating that these developments are likely to result in tighter credit conditions for households and businesses and weigh on economic activity, hiring, and inflation.
The policy statement also removed the “ongoing increases” language, suggesting that future rate hikes will be dependent not just on data but the macro environment.
Traders were previously split on whether the Fed would raise rates by 25 or 50 basis points, and without the regional banking collapse we may have seen 50 but the recent struggles led to today’s decision.
The quarterly expectations of Fed members indicate that the median anticipated terminal fed funds rate remains at 5.1%, with December 2023 core PCE inflation expected to be 3.6%.
Below is the full Fed Statement:
Recent indicators point to modest growth in spending and production. Job gains have picked up in recent months and are running at a robust pace; the unemployment rate has remained low. Inflation remains elevated.
The U.S. banking system is sound and resilient. Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation. The extent of these effects is uncertain. The Committee remains highly attentive to inflation risks.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 4-3/4 to 5 percent.
The Committee will closely monitor incoming information and assess the implications for monetary policy. The Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.
In determining the extent of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.
In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook.
The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.
The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Lisa D. Cook; Austan D. Goolsbee; Patrick Harker; Philip N. Jefferson; Neel Kashkari; Lorie K. Logan; and Christopher J. Waller.
Summary of 25 Basis Points
Federal Reserve has followed through on its promise to raise interest rates by 25 basis points, bringing the benchmark fed funds rate to a target range of 4.75%-5%.
The decision was in line with market expectations, and the price of bitcoin initially rose following the announcement. The FOMC acknowledged recent banking system troubles in its statement, indicating that these developments are likely to result in tighter credit conditions and weigh on economic activity.
The policy statement also removed the “ongoing increases” language, suggesting that future rate hikes will be dependent on both data and the macro environment. The quarterly expectations of Fed members indicate that the median anticipated terminal fed funds rate remains at 5.1%.
The Committee will continue to closely monitor incoming information and assess the implications for monetary policy, with a strong commitment to returning inflation to its 2 percent objective.