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The Federal Reserve of the United States hiked the benchmark interest rate for the first time in two decades on Wednesday.
The FOMC decides to raise interest rates by 3/4 to 1 percent — Which was the most significant rate increase in two decades.
The reason for increased interest rates
“Inflation is far too high,” said Fed Chair Jerome Powell after the central bank boosted rates by 0.5 percent.
The Federal Reserve hiked the benchmark interest rate on May 4, 2022, to combat increasing inflation.
“There is a broad view on the committee that more than 50 basis-point rises should be on the table for the next few meetings,” the central bank’s chairman stated.
In a press release issued on Wednesday, the Federal Open Market Committee (FOMC) stated that the 12 members “agreed to raise the target range for the federal funds rate to 3/4 to 1%.”
“Inflation is much too high, and we appreciate the difficulty it is inflicting, and we are moving promptly to bring it back down,” Fed head Jerome Powell told reporters after the FOMC vote.
The rate boost on May 4, 3/4 to 1% is the second in 2022, following the Fed hiking the benchmark rate on March 16, 2022. The Fed hiked the interest rate from near zero to 0.25 percent at the time, with the goal of hitting 0.25 percent and 0.50 percent.
The FOMC statement went on to say that economic activity in the United States “edged down in the first quarter” and that “[inflation] remains excessive.”
More to come
In addition to raising rates, the Fed intends to reduce its Treasury and mortgage-backed securities purchases.
The FOMC statement concluded, “On June 1, the committee decided to begin reducing its holdings of Treasury securities, agency debt, and agency mortgage-backed securities, as described in the Plans for Reducing the Federal Reserve’s Balance Sheet, which was released in connection with this statement.”
Despite the rate hike, crypto markets were up 5.7 percent in the last 24 hours, indicating that the crypto economy is still growing.
On Wednesday afternoon, stocks soared as well, with the leading U.S. stock indexes (NYSE, Dow Jones, Nasdaq, and S&P 500) all posting large increases
Bitcoin (BTC) increased by 5.6 percent, while Ethereum (ETH) increased by 6.5 percent against the US dollar.
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Steve Anderson is an Australian crypto enthusiast. He is a specialist in management and trading for over 5 years. Steve has worked as a crypto trader, he loves learning about decentralisation, understanding the true potential of the blockchain.
