The Federal Reserve raised its interest rates by 50 basis points, the biggest jump in the last 22 years.
A 50 basis point interest rate hike is now official, as expected by experts and economists, and as hinted by Federal Chairman Jerome Powel last month. Today, May the fourth, the Federal Reserve policymakers hiked their interest rates by 50%, the first time we’ve seen that aggressive hike since 2000.
As a result of inflationary pressure, the March personal core consumption index rose by 2.5%, and the inflation rate rose to +8% by April.
In a press conference this morning, Jerome of the Federal Reserve stated that the FED remains committed to raising interest rates while shrinking its balance sheet.
The Federal Reserve will start shrinking its balance sheet on Juan 1st, as planned. That also includes shrinking purchases of bonds as a strategic move to slow inflation.
Compared to the federal balance sheet reduction goal, this year the reduced amounts are significantly higher than the target in some sense. By June 1, the Federal Reserve will reduce its balance sheet to $49.5 billion per month. The FED will allow up to $30 billion in treasury securities. On top of that, it is expected to add more reductions or at least allow certain amounts of both Treasury securities and agency MBS to roll off its balance sheet.
The S&P 500 and Nasdaq had risen about 2.9% by 3:40 p.m. on Wednesday, hours after Powel attended the conference. The U.S treasury yields fell by 1.9%, while the Dow Jones industrials gained 2.16%. Gold is still below the $1900 level and crude oil rose 5% this morning.
Investors must now trust that the current hot market in the United States is not a direct result of the Federal Reserve’s monetary policy. That’s the idea that some experts believe, considering the facts of external factors.
Today, the bull market came as a direct consequence of multiple variants and external factors. This includes the conflict in Western Europe between Russia and Ukraine, the Chinese lockdown, and the supply chain shortage.
Arguably, the China lockdown will push the market further in a dreadful direction in some sense. Putting more pressure on the global supply chain industry, especially on the tech and industrial sectors,
China is the world’s second-largest economy, and the conflict between the U.S. and China will never stop. However, China plays a larger role in the tech industry, specifically the semiconductor segment.
Economists commented on the current situation and said that the crisis will not disappear any time soon and that we should arsenal ourselves to prevent any complications.
This year there are another 5 additional hikes of interest, and probably 3 of them will be the same as the Mai hikes.
Nonetheless, rising mortgage rates continue to be a threat to the housing market, like late March housing market reports when house sales in the United States were disappointing. Experts believe that the impact of today’s interest rate jumps will come in the form of increases in mortgage rates and a housing market slowdown.
As for JPMorgan, its officials say that they will increase their bank rates by 50 basis points starting on Thursday.