WASHINGTON, DC - MARCH 22: Federal Reserve Board Chairman Jerome Powell holds a news conference following a Federal Open Market Committee meeting at the Federal Reserve on March 22, 2023 in Washington, DC. The Federal Reserve announced a 0.25 percentage point interest rate increase to a peak benchmark range of 4.75% to 5%, the highest level since 2007. (Photo by Alex Wong/Getty Images)
(The Herald Post) – It has been a tumultuous fortnight for the U.S. economy, marked by the fall of three major banks – Silvergate Bank, Silicon Valley Bank, and Signature Bank. In response to these unprecedented failures, the Federal Reserve introduced the Bank Term Funding Program (BTFP) and reassured uninsured depositors of Signature Bank and Silicon Valley Bank that they would be compensated. Despite the chaos in the banking sector, many experts speculated that the Fed would refrain from raising the benchmark interest rate this month.
Contrary to expectations, the Federal Open Market Committee (FOMC) announced a 25 basis point increase in the federal funds rate at 2 p.m. Eastern Standard Time on Wednesday. The FOMC statement explained, “The committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the committee decided to raise the target range for the federal funds rate to 4-3/4 to 5 percent. The committee will closely monitor incoming information and assess the implications for monetary policy.”
Alongside the rate hike, the Fed released its “Summary of Economic Projections,” predicting that inflation will reach 2.1% by 2025 and stabilize at 2% in the long term. The FOMC also anticipates reducing the federal funds rate to 3.1% by 2025. Following the announcement, equity markets experienced an uptick, with three of the four U.S. benchmark indices closing in positive territory.
The cryptocurrency market, on the other hand, saw a downturn in the wake of the rate increase. Bitcoin (BTC) dipped to $28,700 at 2:15 p.m. Eastern Standard Time before sliding further to $27,876 per unit at 2:45 p.m. Currently, BTC is trading just above the $28K mark.
In contrast, precious metals displayed resilience in response to the Fed’s decision. Both gold and silver surged by 1.6% to 2.5% against the U.S. dollar. The FOMC statement acknowledged the recent “modest growth in spending and production” while also noting elevated inflation levels and robust job gains in recent months.
Addressing the press, Fed Chair Jerome Powell emphasized the overall stability of the U.S. banking system, stating that it is “sound and resilient with strong capital and liquidity.” Powell expressed confidence in the Fed’s monetary policy tools and asserted that the rate hikes had been effectively communicated to the markets, with many banks successfully navigating the changes.