Interest
In the wake of recent events, the Federal Reserve has been forced to rethink their interest rate plan. The invasion of Ukraine has caused fears of higher inflation due to the immense number of sanctions placed on Russia, and the US is already facing multi-decade high inflation, so it’s obvious that’s not an option.
The original plan by the Federal Reserve was to increase rates 4 times this year, with each increase by a quarter of a percentage point. The first one was scheduled to be in a few weeks as Powell and his colleagues believed this first quarter would be the peak of inflation, and it seems there’s nothing to change that belief.
Powell said on Wednesday that the Fed will continue their plan of raising rates at their meeting in 2 weeks, testifying that it’s too early to gauge the effects of the Russian invasion on the US economy. This is common for the Fed to do during a geopolitical crisis, and it’s justified. With inflation sky-high, the Fed might be forced to side-step, when necessary, to keep monetary policy afloat. The market reacted positively to this with the indices up more than 1 percent each, but this might not be permanent. An increase in interest rates often leads to a decrease in borrowing, which would lead to decreased earnings in companies and slowed economic growth, which all results in a stock market pullback. However, today’s reaction shows that the market might’ve already priced in the Fed’s March interest rate hike, which should be promising for market bulls looking for the stock market to continue its tear.
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
