On Wednesday, November 2, 2022 the U.S. Federal Reserve increased its federal funds rate by 75 basis points. The American central bank said on Wednesday that the hike aims to curb inflation and the Fed says “recent indicators point to modest growth in spending and production.”
U.S. Central Bank Increases Federal Funds Rate By 75bps
While U.S. president Joe Biden hosted an event called the “Infrastructure Talent Pipeline Challenge,” the country’s central bank increased the FFR once again by 75bps on Wednesday. Markets knew that the FFR would rise by 75bps well in advance of the Federal Open Market Committee’s (FOMC).
White House reports that the Biden administration will allocate $13.5 million to low-income American households to pay heating costs this winter. Red-hot inflation means that Americans pay 28% more to heat their homes this winter than they did last year.
“Recent indicators point to modest growth in spending and production,” the FOMC announcement said on Wednesday. “Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures,” the central bank added.
The Fed’s FOMC statement continued:
Russia’s war against Ukraine is causing tremendous human and economic hardship. These events and the war are adding upward pressure to inflation, and affecting global economic activity. The Committee pays close attention to the risks of inflation.
The Fed’s rate hike follows the U.S. central bank’s key inflation gauge, the personal consumption expenditures (PCE) price index report, which showed an increase of 0.5% in September. The most recent Consumer Price Index (CPI), also noted that U.S. consumer prices rose 8.2% in September.
On the possibility of a Fed Pivot, stocks, Bitcoin, precious metals and other assets rise
After the Fed’s announcement of a 75bps increase, stocks surged and bitcoin (BTC), also rose 1% within the hour. Per troy ounce gold rose 0.98%, and one ounce fine silver rose 1.58% from the $20/ounce area.
Markets rebounded as the Fed’s announcement hinted at a possible pivot. “The committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments,” the U.S. central bank said.
Freddie Mac announced last week that the average 30-year fixed-rate mortgage rate has risen to 7% from 3.14% a mere one year ago. FFR will continue to rise and affect all Americans who want to have access to credit, mortgages, and loans.
During Jerome Powell’s follow-up speech, he still insisted that rate hikes and monetary tightening were and still are needed to address the country’s red-hot inflation. Powell stated repeatedly that the Federal Reserve still has a high goal for 2% inflation.
Although, he also said a slowdown in restrictive measures “is coming” and insisted it could very well happen “at this coming meeting or the next,” when reporters asked the central bank chief if the Fed would pivot by December.
Following Powell’s news conference with reporters, stocks, precious metals, and bitcoin started to lose the gains they saw an hour after the FOMC statement was released. All four major stock indexes had declined by 2:55 PM (ET), gold rose by 0.13 percent, while bitcoin was up by 0.6% Wednesday afternoon.
What do you think about the Fed’s fourth consecutive 75bps rate hike? Please comment below on your views.
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