Surprising Hike – The Federal Reserve Meeting
The Federal Reserve has had arguably one of the hardest jobs in the United States in the past 2 years. Many argue that inflation got out of control because of the Fed, but regardless of your opinion they have had to deal with it since. Jerome Powell’s insistence that inflation must be wiped out was rather hawkish, and it was displayed with how quickly rates were hiked. This angered many investors and caused a slowdown in the economy, but ever since June of last year there have been signs that inflation was truly slowing down due to the interest rates. The Fed seemed to be getting their credit and gaining investor confidence, but this was until the banking sector entered a major crisis. As we all know, one of the major reasons why many regional banks collapsed is due to the high interest rate environment, and it put the Fed in an interesting position as they had an interest rate decision to make.
The Fed ended up raising rates by 25 basis points on Wednesday, a slight rate hike that had some people surprised. Some analysts expected the Fed to keep rates the way they are in order to ensure stability in our financial system and provide confidence to the public. However, if the Federal Reserve decided to do that, they would not make progress towards fighting inflation. Jerome Powell and the rest of the officials admitted that there was heavy discussion regarding the rate hike decision due to the mess in the banking sector, and that the rate-hiking campaign could be coming to a close soon as a result. The possible effects of this economic crisis are clear to the Fed, and it provides another variable that they have to deal with along with the Russia-Ukraine war. Although they said they are likely not going to raise rates, Chair Powell’s comments indicated that the Fed plans to not reduce rates for the rest of the year. That kept the markets in an unhappy mood, leading to negative finishes on the day, and this banking crisis is yet another twist that makes the Fed’s job a strategic game of chess.
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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.
