Fed interest rate was raised for the first time in more than two years, as the central bank fights growing US inflation, the effects of the Ukraine conflict, and concerns about coronavirus. The Federal Reserve raised rates by a quarter of a percentage point, which is expected to be the first in a number of raises over the coming months.
Why was the Fed interest rate increased?
The US stock market rose in a wild session on Wednesday. The indexes initially reduced their gains before rising again following Chairman Jerome Powell’s statement concerning the Fed interest rate. The Fed said in a statement that economic indicators and employment rates had “continued to strengthen,” but that inflation was still high and the Ukraine invasion was not only “causing tremendous human and economic hardship” but was also “likely to create additional upward pressure on inflation and weigh on economic activity.”
The Fed is charged with two objectives: to maximize employment and keep inflation in check. The job market and the economy as a whole have made an amazing recovery from the pandemic’s lows, owing in part to interest rate cuts and a massive stimulus program, but prices have risen by 7.9 percent over the last year, which is the highest level of inflation in the US since last 40 years.
Supply chain difficulties have resulted in significant price increases for a variety of items including used cars, food, and utilities, which are causing particular hardship for low-income people. The Fed initially dismissed growing costs as “transitory,” but it has since acknowledged that high inflation is likely to continue for some time. With the ongoing conflict in Ukraine and China’s efforts to control future coronavirus occurrences, supply issues that appeared to be improving earlier this year have gotten worse.
The Federal Reserve has predicted six more rate hikes this year. St Louis Fed President, James Bullard called for a bigger half-percentage-point rise in April. “We’ll do it if we think it will be appropriate to raise interest rates faster,” Chair of the Federal Reserve, Jerome Powell added.
Inflation is running at nearly four times the Fed’s target rate of 2%, and Powell has made it clear that the central bank will raise rates in an effort to control increasing prices. Some economists, on the other hand, are doubtful about how much influence the Federal Reserve can have on such a complicated problem.
European markets rise prior to Fed interest rate decision
European stocks rose somewhat on Wednesday, as global markets anticipate the latest monetary policy statistics and economic projections from the US Federal Reserve.
- France +2.19%.
- Germany +2.32%.
- London +1.23%.
- The pan-European Stoxx 600 index was trading 1.6% higher Wednesday morning with all sectors in positive territory.
- In the bond market, The yield on 10-year Treasuries was up more than three basis points to 2.19%.
- Germany’s 10-year yield was up more than four basis points to 0.38%.
- Britain’s 10-year yield was up more than five basis points to 1.63%.
- FTSE +0.60%; CAC flat; DAX +2.23% and EURO STOXX +2.42%.
Bitcoin price rises in light of Fed interest rate increase
The value of Bitcoin and most of the top cryptocurrencies by market capitalization rose on Thursday, a day after the Fed interest rate was increased.
The cryptocurrency market responded positively, with Bitcoin reaching US$40,000 and remaining stable as of Thursday morning Asia time. Bitcoin is up 4.46% and trading at roughly US$41,000 right now.