The U.S. Federal Reserve Biggest Interest Rate Hike in 28 Years

The U.S. Federal Reserve Biggest Interest Rate Hike in 28 Years.

ON WEDNESDAY, the U.S. Federal Reserve raised interest rates by 75 basis points or three-quarters of a percentage point.

It is the biggest rate hike in 28 years, part of an ongoing effort to bring down soaring inflation that has roiled the economy and markets from stocks and bonds to cryptocurrencies.

The U.S. central bank also announced it would continue reducing the size of its balance sheet at the rate reported in May, according to a statement by the Federal Open Market Committee (FOMC), which sets the Fed’s monetary policy.

The Fed Funds rate, the range at which commercial banks can borrow and lend their excess reserves to each other overnight, will rise to a range of 1.5%-1.75%, according to the Fed.

According to Goldman Sachs, bond traders are pricing in a range of 3.25%-3.5% by the end of the year, implying an unusually rapid and harsh pace of monetary tightening.

The U.S. Federal Reserve Biggest Interest Rate Hike in 28 Years

The U.S. Federal Reserve Biggest Interest Rate Hike in 28 Years

“The current picture is plain to see,” Federal Reserve Chair Jerome Powell said Wednesday at a press conference after the decision was announced.

“The labor market is extremely tight, and inflation is much too high.”
The last time the Fed raised its benchmark rate by 0.75 percentage points was in 1994.

Powell said the U.S. central bank would not “declare victory” until officials see “compelling evidence” that inflation is coming down.

Given that May’s Consumer Price Index measuring inflation came in hotter than expected, at a fresh four-decade high, markets already started reacting to the possibility of a faster rate hike in the days leading up to this week’s Fed meeting.

The closed-door meeting began on Tuesday and culminated with the statement on Wednesday at 2 p.m. ET.
“Markets loathe uncertainty and unpredictability,” said Josh Olszewicz, head of research at Valkyrie.

“A decrease in downward volatility will only likely be achieved with a pause or reversal of the current Fed policy and direction.”

Bitcoin (BTC) was changing hands around $21,444 about an hour after the meeting, up from $21,076 when the decision was released.

Most analysts had already priced in the hike in the days leading up to the meeting.



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