The U.S. Federal Reserve raised the benchmark interest rate on Wednesday and the increase was the biggest rate hike in two decades. “Inflation is much too high,” the central bank’s chair Jerome Powell said after the Fed raised rates by 0.5%.
FOMC Decides to Hike Rate by 3/4 to 1% — Increase Was the largest Rate Hike in 2 Decades
- On May 4, 2022, the U.S. central bank raised the benchmark interest rate in order to curb rising inflation. The Federal Open Market Committee (FOMC) explained on Wednesday in a press release that the 12 FOMC members “decided to raise the target range for the federal funds rate to 3/4 to 1 percent.”
- The Federal Reserve also said the central bank “anticipates that ongoing increases in the target range will be appropriate.” Additionally, the FOMC statement issued at 2:00 p.m. (ET) said that the Ukraine-Russia war and the Covid 19-related lockdowns in China have made “implications for the U.S. economy highly uncertain.”
- Speaking to reporters after the FOMC decision, Fed chair Jerome Powell said: “Inflation is much too high and we understand the hardship it is causing and we are moving expeditiously to bring it back down.” The central bank’s chief added that there was “a broad sense on the committee that additional 50 basis-point increases should be on the table for the next couple of meetings.”
- The May 4, 3/4 to 1 percent increase is the second rate hike in 2022 after the Fed raised the benchmark rate on March 16, 2022. At that time, the Fed raised the interest rate from near zero to 0.25% in order to target 0.25% and 0.50%
- The FOMC statement further added that the United State’s economic activity had “edged down in the first quarter” and stressed that the “[inflation] remains elevated.”
- In addition to the rate hike, the Fed plans to taper back its Treasury securities and mortgage-backed securities spending.
- “The committee decided to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities on June 1, as described in the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet that were issued in conjunction with this statement,” the FOMC statement concluded.
- Despite the rate increase, crypto markets were positive on Wednesday as the crypto economy rose 5.7% over the last 24 hours. The price of bitcoin (BTC) jumped 5.6% higher and ethereum (ETH) spiked by 6.5% against the U.S. dollar.
- Furthermore, stocks rallied as well on Wednesday afternoon, as the top U.S. stock indexes (NYSE, Dow Jones, Nasdaq, S&P 500) saw significant gains. For instance, the Dow Jones Industrial Average jumped over 900 points on the bet that the central bank’s move was a correct one.
What do you think about the Federal Reserve raising the benchmark interest rate by 3/4 to 1%? Let us know what you think about this subject in the comments section below.
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