The US central bank, the Federal Open Market Committee (FOMC), convened on Wednesday & raised the federal funds rate by 50 basis points (bps). This follows four consecutive three quarter-point increases, with a 0.5 percentage point hike taking place in the last few months. The US Inflation Report, which showed that consumer prices dropped to 7.1%, was an indicator of deflation. This was lower than expected.
The Fed hiked the federal funds rate by 50 bps. The central bank predicted more rate increases in the future.
In response to the Consumer Price Index (CPI) Report released on Tuesday, members of the US Federal Reserve met on Wednesday and declared a 50bp rate hike. This month’s rate hike is lower than the previous four three-quarter point rate hikes (75bp).
“The committee seeks to maximize employment and inflation at a rate of 2 percent over the long term,” the FOMC stated. “In support of these goals, the committee decided to raise the target range for the federal funds rate from 4-1/4 to 4-1/2 percent.” The Federal Reserve anticipates that the Federal Funds Rate will increase by 75 bp before the end of next year.
The CPI data was followed by news Tuesday showing that the inflation rate in November was 7.1% year-on-year. Core CPI increased 0.2% over the previous month, according to the US Bureau of Labor Statistics (BLS). “Over the past 12 months, the all items index increased 7.1 percent before seasonal adjustment,” noted the BLS CPI Report. The FOMC report states that the Fed will keep monitoring “incoming data for the economic outlook.”
“In addition, the committee will continue to reduce its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as outlined in the Plans to Reduce the Size of the Federal Reserve’s Balance Sheet that were issued in May,” the committee declared. “The committee is firmly committed to bringing inflation back to its 2 percent target,” the FOMC updated. After the announcement by the bank of a rate hike and that they would continue to raise rates, stock markets tumbled.
Cryptocurrency prices also dropped after the FOMC statement, with bitcoin (BTC), falling below $18K. Fed Funds have seen a series of rate increases, including a one-half percentage point jump, four three quarter point increases, and five Fed funds rate hikes in 2022.
Late November, Federal Reserve Chairman Jerome Powell delivered a speech at the Brookings Institution in Washington in which he suggested that rates will most likely be cut in December. Powell has been subject to political pressure surrounding rate increases. Tesla’s Elon Musk has warned against sudden and aggressive increases in the past few months.
“We have more work to do,” Powell declared according to reporters on Wednesday afternoon, adding that “inflation risks are on the upside.”
