The Federal Open Market Committee (FOMC) has made a highly anticipated decision to increase rates by 25 basis points, bringing the Fed funds rate to 5%-5.25%. This move was expected due to the strong economic growth in the United States in recent months, but it also signals the Federal Reserve’s growing concerns about rising inflation.
Despite the rate hike, investors are more focused on whether the Fed will continue raising rates in the future or pause here. The ongoing banking crisis and concerns over economic growth have unsettled Wall Street, leaving investors unsure about the market’s direction in the short term. Stocks rose slightly, and Treasury yields were mostly lower after the Fed news, but stocks struggled to hold onto the gains.
The Fed funds rate is now aligned with CPI inflation, which is also at 5%. The FOMC seeks to achieve maximum employment and inflation at the rate of 2% over the longer run. The committee will consider prior actions, lags to policy, and economic and financial events in deciding on further actions, indicating a cautious approach to raising rates.
The consensus is that the rate hikes will be paused to evaluate macroeconomic conditions. This decision suggests that the Federal Reserve will carefully evaluate the impact of the rate hike on the economy before making any further decisions.
Following the news of the rate hike, Bitcoin was trading at $29k, up 1% over the past 24 hours. The Dow Jones Industrial Average closed lower by 270.29 points, or 0.80%, to end at 33,414.24. The S&P 500 dropped 0.70% to close at 4,090.75, and the Nasdaq Composite slid 0.46% to close at 12,025.33. The indexes notched three-day losing streaks.
The rate hike decision has sent mixed signals to the market, signaling the strength of the US economy while raising concerns about the impact of rising inflation. Investors will be closely watching how the Federal Reserve responds to these concerns in the coming months.
