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- 1 The Federal Reserve increases interest rates for the tenth time.
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Financial markets remained more or less stable, unlike in the past.
The United States Federal Reserve again raised the interest rates on Wednesday, May 4, 2023. The ongoing long streak of interest rate hikes started in March last year and received the tenth installment. Once began with the motive to curb soaring inflation, turning out to be a battle that might take longer to resolve. Broader market participants anticipated a halt or even a decrease in interest rates. However, the hopes didn’t get results as there were no indications from Fed Chair Jerome Powell or Federal Open Market Committee.
Fed Interest Rate Hike Might Not Halt Soon
With the latest hike of 25 basis points, or 0.25%, the overall interest rate reached 5% to 5.25% from 0 during March 2022. The basis points rise was among the smallest ones, which witnessed aggressive increases of 75 and 50 points in the past.
The continued shrinking in the rate hikes came as the hope for investors of the central bank might consider halting or decreasing the interest rates for good. The softening of language in the FOMC’s policy statement also gave hope. Along with tightening “credit conditions,” the committee also emphasized looking for the effect on “economic activity and inflation, and economic and financial developments.”
During the press conference, Federal Reserve Chairman Jerome Powell said that inflation has slowed down its pace, but it still lingers higher than the ideal goal of 2%. The US inflation rate stays around 5%, down from its peak and highest since 1981 of over 9% in June last year, but still “has a long way to go.”
Impact on the Markets
The financial markets show movements following such policy-level announcements as a general ritual. Though the interest hike and the 25 basis point raise were broadly anticipated, there was a slight movement in equities and cryptocurrency markets.
The Dow Jones Industrial Average was reported to drop by 245 points, the Nasdaq declined by 0.3%, and the S&P 500 dropped by 0.5% following the hike announcements. Major cryptocurrencies Bitcoin (BTC) and Ethereum (ETH) also took hiccups but not significant downtrends. The former dropped from around 28,600 USD to 28,300 USD, while the latter lost slightly over 1% of its trading price. Currently, both leading digital currencies are trading in green at the time of writing.
The efficacies of aggressive interest rate hikes by the Federal Reserve reportedly showed in the banking sector. During the last few months, the broader financial space faced difficulties, with some vanishing in the contingency. Silvergate, Signature, and Silicon Valley Bank (SVB) were the most prominent.
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.
