The U.S Central Bank Increasing Rate By 75 Basis Points is Causing a Global Panic
On Wednesday, interest rates were once again raised by three-quarters of a percentage point by the Federal Reserve. The bank stated that the fight against inflation would demand raising the borrowing costs even more. Still, it indicated that it might be close to an inflection point in what has evolved into the quickest tightening of U.S. monetary policy in forty years.
The two-edged message opened up the chance that the rates may be raised in smaller increments by the U.S. central bank in the future, concluding the series of three-quarters-of-a-percentage-point hikes as early as December in favour of more moderate increases of perhaps half a percentage point, whilst the dual message gave policymakers room to raise rates further if inflation doesn't start to slow down.
After the end of the central bank's latest policy meeting, Jerome Powell, Fed Chair stated during a news conference that he did not want any confusion on that matter: he stated that even though policymakers successfully scaled back future gains, they remained uncertain regarding just how high the rates would need to climb in order to curb inflation and were set on staying the course until the job's done.
According to Powell, regardless of how swift the movements of the feds are, there will still be some ground left to be covered in order to reach the target of the federal funds rate to get to a "sufficiently restrictive" level which will delay inflation. He added that the final destination is significantly sceptical and will be discovered over time.
The more important question is not when to moderate the rate of increases but how high and for how long to hold the monetary policy restrictive. He added that the discussion is premature since the Fed can pause its increases.
Following the Fed's statement that vowed to take into account the economic risks in decisions concerning any further increases in rates, leading major U.S. stock indices to spike, though the gains were erased as Powell spoke and ended lower by the day. The S&P 500 index (.SPX) and the Nasdaq Composite (.IXIC) fell by 2.5% and more than 3%, respectively.
The U.S. Treasury securities yields, which witnessed a sharp decline following the Fed statement, turned higher. The bond maturity most susceptible to changes in Fed policy expectations, the 2-year note, increased by six basis points to roughly 4.61%.
A former top Fed staffer, Bill Nelson, who is the current chief economist at the Bank Policy Institute, prior to Powell's news conference stated that the policy statement by Fed seemed to put the central bank up for added hikes in a rate before the tightening cycle is finished, delivered at a conceivably sluggish pace. According to the document's implications, Nelson stated that the Fed might be striving for a medium-term level higher than the currently expected fed funds rate.
No Decision Yet
After a rapid rise in the policy rate from near zero in March to a range between 3.75% and 4.00%, the quickest monetary tightening since the early 1980s, investors anticipated a signal from the Fed that it may ease up on the pace of tightening.
The speed of rate hikes has triggered global anxiety; the global economy was being dragged to the point of no return by the Fed, With the dollar's strength versus key currencies effectively exporting U.S. inflation and pressuring financial markets from London to Tokyo.
As per Procurement Resource, US Federal Reserve is once again raising the interest rates, although there is a looming uncertainty regarding how high the rates will be raised till inflation is curbed. Adding to this, the rapid rate increases have triggered global anxiety as the economy is dragged to the point of no return. As per the statement by Fed, it was mainly recognised that an assessment of the effect of the policy moves made so far is needed in order to determine any further course of action.