Fed announces 75 basis point hike, pushing interest rates to highest level since 2008

On Wednesday, November 2, the US Federal Reserve announced a 75 basis point rate hike to control rising inflation. The rate hike came in line with expectations as the Fed signaled how it intended to approach monetary policy going forward.

Another rate hike by the Fed

With the Fed’s recent rate hikes, interest rates soared to 3.75%-4%, the highest level since January 2008. This is also the most aggressive pace of rate hikes since the 1980s. Four years ago, the inflationary situation was the same as today.

In its speech yesterday, the Federal Reserve also hinted that this could be the last 75 basis point hike in its rates. The U.S. central bank hinted at a change in policy, adding that in determining future hikes, the Fed “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.

Interestingly, economists have also hinted at a gradual decline in politics. They expect another 50 basis point hike in interest rates in December, followed by smaller hikes throughout 2023. A statement from the Federal Open Market Committee (FOMC) reads:

“The Committee anticipates that continued increases in the target range will be appropriate to achieve a monetary policy stance tight enough to bring inflation down to 2% over time.”

The evolution of the American market

Shortly after the FOMC statement, there was a sharp rise on Wall Street for a short while, however, a correction entered later. Shortly after, Fed Chairman Jerome Powell spoke at a press conference, dismissing the idea that they might take a break in the near future. Powell also added that it would take determination and patience to bring inflation down.

We still have some way to go and incoming data since our last meeting suggests that the final level of interest rates will be higher than expected.“, he added.

Jerome Powell also raised the idea that there would come a time when the pace of rate hikes should be slowed down. “So that moment is coming, and it could come at the next meeting or the one after. No decision has been made“, did he declare.

The Fed Chairman also expressed concerns for the future. He said it would take longer than expected to stop future rate hikes. It also reduced the chances that the Fed would be able to pull off a soft landing. Responding to the question whether or not the “soft landing” path has narrowed, he said:

“Has she shrunk? Yes. Is it still possible? Yes.”

Jerome Powell also said the need for higher rates would make it even more difficult. “The policy needs to be more restrictive, and it narrows the path to a soft landing“, he added.

Some market analysts estimate that the United States could enter a recession within six to nine months, that is, by mid-2023.

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