- Get used to half-point hikes, Powell said
- Crypto is trading like a big tech stock, and risk assets are not doing well as interest rates rise, analysts have warned
The Federal Reserve hiked interest rates by half a percentage point on Wednesday, a move the market had largely expected as inflation remains more than percentage points above the central bank’s target.
The Fed too announced its plans to reduce its $9 trillion investment portfolio, beginning by calling bonds to maturity without reinvesting the proceeds in new securities rather than selling them on the open market.
“Inflation is way too high,” Fed Chair Jerome Powell said during a news conference following the release of the statement. “It is important that we bring inflation down if we are to have a sustained period of strong labor market conditions that benefit everyone.”
Stocks were broadly flat after the announcement, with the Dow Jones Industrial Average up 0.4%, the S&P 500 flat and the tech-heavy Nasdaq down 0.5%.
“50 basis points were priced in by the market, so that’s to be expected,” said Jeffrey Howard, head of institutional sales and business development at OSL. “The market initially rallied and has only sold off a bit since then as there are some more aggressive comments on a possible 75 basis point hike at the next session.”
The committee is not “actively considering” a 75 basis point hike and expects another 50 basis point hike if current inflation and market conditions persist, Powell said.
Bitcoin and Ether rallied on the news, up about 3.5% and 1.2%, respectively. Cryptocurrencies have been trading in line with stocks lately, much like a big tech stock, Howard said.
“Market sentiment is very bearish, not just for technology stocks but for risk assets in general,” Howard said. “Risk assets don’t do well in a rising interest rate environment and so I generally think the market is bearish.”
Despite widespread concerns from economists that the Fed was too slow to respond to inflation, Powell is confident the central bank can stave off a recession.
“I think we have a good chance of restoring price stability without a recession,” he said. “I see a strong economy now. For example, I see a very strong job market, companies can’t find people to hire…usually in a recession we have unemployment.”
The post Fed approves half a point rate hike, Crypto Trades Like Big Tech is not financial advice.
Source: Crypto News Austria