The Federal Reserve increased interest rates for the first time since 2018 to counter inflationary pressure in the US. After a moderate gain of 25 basis points, Bitcoin slumped below $40,000. But then it managed to rise above $40,000 again.
The rate hike was also widely anticipated by analysts, who felt the Fed should raise interest rates to contain inflation. Last month, inflation in the US reached 7.9%, its highest level since January 1982. This level was well above the Fed’s target of keeping inflation at 2% a year in the “long term”.
Today’s decision comes after Fed Chairman Jerome Powell told Congress in early March that the central bank will “proceed with caution” in its plan to raise interest rates this year despite the war in Ukraine.
Besides, we can say that the Fed’s decision is widely expected in the market and it is not much of a surprise. In other words, an interest rate hike was expected, moreover, an overall increase of 25 basis points was expected. Only some economists were in a debate over whether the Fed should raise it 50 basis points instead of 25 at today’s meeting, given high inflation.
Popular trader Michaël van de Poppe said on Twitter that the first move would likely be a “fake move”. After the fake exit, Van de Poppe predicted, “it will result in real action and then a general panic attack.”
Powell’s Description
After the decision was announced, Jerome Powell also made a statement. Here are the highlights of Powell’s statement:
- Russia’s invasion of Ukraine increased inflationary pressures.
- Supply shortages are greater and more persistent than anticipated. Inflation continues to be well above the target.
- It will take longer than our initial expectations for inflation to return to target. Energy prices will increase the pressure on US inflation.
- All signs say we have a healthy economy. This can continue with less supportive monetary policy.
- The contraction of the balance sheet will play an important role in tightening the monetary policy.
- The war in Ukraine was instrumental in reducing the economic growth expectation for 2022 to 2.8 percent. Nobody wants to touch Russian goods, which creates problems in their supply chain.
- The probability of a recession is not extremely high.
- We maintain our expectation that inflation will come down in the second half of the year.
Disclaimer: What is written here is not investment advice. Cryptocurrency investments are high-risk investments. Every investment decision is under the individual’s own responsibility. Finally, Koinfinans and the author of this content cannot be held responsible for personal investment decisions.