The Clap
Who could’ve seen that one coming? Probably everyone. The U.S. Fed has raised interest rates for the first time since December 2018 in an effort to tackle soaring inflation, which is a “top priority” on U.S. President Joe Biden’s economic agenda.
The deets
Interest rates will rise by 0.25%, & the Fed expects to hike rates up to six times this year, reaching 1.9% by the end of 2022. It then expects to raise three more times in 2023, & none in 2024.
Why not just raise it more than 0.25%?
They could. In fact, one vote was in favor of a 0.5% hike, versus eight votes in favor of 0.25%. While the Fed was expected to take an aggressive approach to tame soaring inflation, the uncertainty created by the Russia-Ukraine crisis has forced the Fed to reassess its approach.
Why’s that?
Higher interest rates are a double-edged sword, which is why central banks face pressure to get it just right. Raising rates too quickly could irritate markets & potentially cause a recession. Not raising rates enough could allow inflation to continue soaring, giving central banks an even tougher task on their hands.
U.S. Stocks: Pow Pow
All three major U.S. indices fell immediately after the rate hike announcement, before rebounding strongly following remarks from Fed Chair Jerome Powell playing down the possibility of a recession.
