- The Fed raised rates by 75 basis points today, the biggest increase since 1994.
- The decision comes after inflation in the United States officially hit a forty-year high.
- The market reacted negatively to the announcement, with Bitcoin and Ethereum losing 8% and 13% of their daily value.
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The US central bank announced today that it will increase interest rates by 0.75% in an effort to combat rising inflation.
Biggest increase since 1994
The United States Federal Reserve today raised interest rates for the third time in three months.
During today’s Federal Open Market Committee meeting, Fed Chairman Jerome Powell announced that the US central bank would raise its benchmark short-term rate by 75 basis points, or 0.75%, to a range of 1.5% to 1.75%. The decision was the result of a vote by the Federal Open Market Committee, the bank’s monetary policy-making body.
The market reacted negatively, though not disastrously in the short term. The S&P 500 and Nasdaq-100, which were up 0.85% and 0.75% an hour before the meeting, are now up 0.50% and 0.95% at the time of writing. Bitcoin and Ethereum, already struggling at -6% and -10% daily, fell as much as -8% and -11%, respectively.
The Federal Reserve is raising interest rates in an effort to tackle inflation in the US. Economists were surprised when the Consumer Price Index (CPI) was officially announced. Beat Four-decade high of 8.6% in May. According to data published by the US Bureau of Labor Statistics, the prices of food, shelter and gasoline have increased the most.
The CPI print indicated that the central bank would continue to adhere to its quantitative tightening policy, which would make credit more expensive and reduce the circulating supply of money within the economy. Powell had previously expressed his concern that raising rates too high and too fast could trigger a recession.
The policy has already resulted in significant declines in the market, with SPX and NASDAQ losing about 22% and 31% of their 2021 all-time highs. Bitcoin and Ethereum have experienced very bad volatility and are currently trading around $20,700 and $1,080; A decrease of 69% and 77%, respectively.
The 75-basis point increase marks the Fed’s biggest interest rate hike since 1994. It had raised rates earlier 0.25% March 16 and onwards 0.50% On May 4, which was the first hike in rates since 2018. The rates are expected to increase further by the end of the year.
Disclosure: At the time of writing, the author of this article owns ETH and several other cryptocurrencies.