“US Federal Reserve decision to raise interest rates and open door to stop: Impact on economy and markets”

Investing.com – raised interest rates by 25 basis points, bringing US interest rates to the 5.25% range, the highest level since September 2007.

The US Federal Reserve Chairman, Jerome Powell, is expected to appear after half an hour at a press conference to read the Fed’s statement and respond to press questions about the Fed’s policy in the coming period and its interaction with the banking crisis and the slowdown in US growth.

The most important thing that came in the meeting of the Federal Reserve is to open the door to stop .

The most important thing in the Federal statement

The change in the Fed’s statement revealed a clear intention to stop further rate hikes, as the Fed removed from its statement a sentence saying that “some additional hikes may be appropriate” to achieve the 2% inflation target.

The language of the statement was also modified to make it more appropriate to avoid a new hike in interest rates, and the statement did not include any references to future increases or the target range for interest rates.

The statement stressed that the Fed “will take into account the cumulative tightening of monetary policy, and the slowdown with which monetary policy affects economic activity, inflation, and economic and financial developments.”

Taken together, these moves are at least a weak nod that although tough policy could still be in effect, the path forward is less clear for higher real interest rates as policymakers assess incoming data and financial conditions.

Wednesday’s decision comes amid the fragility of the US economy due to banking crises that renewed last week with the fall of First Bank, which prompted members of Congress to demand the Fed stop raising interest rates, as they insisted it could cause a recession and excessive job losses.

However, the labor market has remained strong since the increases began in March 2022. Meanwhile, inflation remains well above the 2% target that policymakers consider optimal. Several officials said rates will likely need to stay high even if the increases are suspended.

Besides inflation, the Fed had to deal with turmoil in the banking industry that saw the closure of three medium-sized banks.

Although central bank officials insist that the industry as a whole is stable, the expected tightening in credit conditions and upcoming tighter regulations are expected to further impact economic growth which was only 1.1% annually in the first quarter.

The post-meeting statement noted that “tighter credit conditions for households and businesses are likely to affect economic activity, employment and inflation.” The language was similar to the March statement, which came after the collapse of Silicon Valley Bank and Signature Bank.

Fed economists warned at the FOMC meeting in March that a shallow recession was likely due to banking problems.

The statement from this week’s meeting confirmed that economic growth was “modest” while “job gains were strong” and inflation was “high”.

While higher rates have exacerbated banking problems, Fed officials insist they are focused squarely on inflation. Recent data points have indicated a moderation in price increases, although “sticky” items such as housing costs and Medicare remain higher, while prices that tend to change a lot, such as food and energy, have actually slowed, according to the Atlanta Federal Reserve. mathematical calculations.

Markets expect that slow growth and the possibility of a recession will force the Fed to cut interest rates later this year.

Manufacturing has been contracting for the past six months, as measured by the Institute for Supply Management. However, the services sector, which entails a broader slice of the $26.5 trillion US economy, points to expansion.

The labor market also remained resilient. Payroll processor ADP reported on Wednesday that hiring by private sector firms increased by 296,000 in April, which beat economists’ expectations. This was a potential signal that despite all the Fed’s efforts to cool the jobs picture and correct the supply-demand imbalance, problems remain.

markets now

The American fell strongly, losing 0.64% of its value, and recording 101,112 against a basket of foreign currencies, while futures contracts rose to 2029.35, up 0.30%, while spot contracts rose by 0.18%, to 2020.41 dollars an ounce.

Yields fell sharply, with the 10-year Treasury yield dropping 1.75% to trade at 3.379% now.

On the other hand, the wounds of oil deepened, dropping by 4.0%, to record $68.78 a barrel, while it fell by 3.72%, to $72.52 an ounce.

The main indices of the US market rose, now rising by 0.42% to 12137.07 points, while it rose by 0.19% to 4127.50 points.

While it settled at 33668.99 without significant movement.

It fell by 0.8% after the interest rate decision, to trade at $28,505.0, while Ethereum rose by 1.45%, to record $1,887.20 for the currency.

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