The United States Federal Open Market Committee (FOMC) ended two days of meetings on Wednesday with the widely anticipated announcement of a 50 basis point, or 0.5%, rate hike. It is the second of an expected seven price adjustments this year. In March, the Federal Reserve raised interest rates by 25 basis points, or 0.25%, marking the first upward adjustment since 2018.
Markets braced for Wednesday’s rate hike, which was the steepest since 2000, so the immediate reaction is expected to be moderate. Fed Chair Jerome Powell hinted at a 50 basis point adjustment in a discussion hosted by the International Monetary Fund in April.
*FED RAISES RATES BY 50 BPS TO START OUTFLOAT ON JUNE 1 AT $47.5B/MTH
*FED EXPECTS “ON-GOING” RATE RISE TO BE REASONABLE
*FED: RUNOFF PACE RISE TO MAX 95bn USD/MTH AFTER THREE MONTHS
— Christophe Barraud (@C_Barraud) May 4, 2022
Bitcoin (BTC) price has fallen over 40% since the US Federal Reserve unveiled plans for a rate hike in November. BTC hovered around $41,000 after the FOMC decision in March. It is now trading at around $39,000.
The FOMC’s move is an attempt to combat rising inflation, which hit 8.5% in March, the highest level in four decades. Many economists have criticized the Fed for being too slow in mobilizing its fight against inflation, leaving it vulnerable to overreaction. The Fed has maintained zero interest rates to support the economy during the COVID-19 pandemic, but has wrongly dismissed a rise in inflation in 2021 as “temporary”. Now, the ongoing war in Ukraine and renewed pandemic-related lockdowns in China have fueled even higher inflationary pressures around the world.
In its policy statement on Wednesday, the Fed also announced that it will begin selling part of its balance sheet of bonds and mortgage-backed securities, which has doubled to $9 trillion since the pandemic began. At best, this will result in a temporary shock to financial markets, but could potentially have longer-term negative effects.
Related: Bitcoin rises with stocks as US inflation hits highest level since 1981
US President Joe Biden said in the White House earlier Wednesday that the Treasury Department will pay down the national debt this quarter, which will also help bring down inflation. Treasury Secretary Janet Yellen said at a Wall Street Journal event on Wednesday that she expects continued economic growth this year and a “soft landing” in inflation without slipping into a recession.
https://cointelegraph.com/news/fed-hikes-interest-rates-by-50-basis-points-in-effort-to-combat-inflation The Fed is raising interest rates by 50 basis points to fight inflation