- On Wednesday, July 26, the Federal Reserve raised interest rates for the 11th time. The current value of the rate is 5.5%.
- In a subsequent press conference, the head of the regulator Jerome Powell assessed the situation and spoke about the outlook.
- According to him, there will probably be no rate cut this year. The regulator remains committed to reducing the rate of inflation to 2%.
The U.S. Federal Reserve’s Federal Open Market Committee (FOMC) met on Wednesday, July 26th. The regulator raised the interest rate to 5.5% as expected. After the meeting, agency head Jerome Powell held a press conference to outline the authorities’ future course.
“My colleagues and I remain committed to our primary goal of ensuring high wages and stable prices for U.S. citizens. We recognize the potential damage of high inflation and will continue to make every effort to slow its pace to 2 percent,” Powell began his remarks.
The Fed chairman said there are some signs of improvement. However, it’s too early to talk about policy easing:
“We still have a long way to go before inflation reaches 2%.”
As of this writing, the rate remains at 2.97%, according to YCharts:
Tips from Powell’s speech
In the press conference, the Fed chairman touched on the following points:
- Demand and supply in the labor market have become more balanced. The pace of nominal wage increases has slowed, while interest from the potential labor force has increased;
- while the labor market remains tight. This is one of the factors the Fed considers when preparing an interest rate decision;
- the regulator takes an approach that relies entirely on data. The agency has done a great job and the decision to raise the interest rate was not an easy one;
- the outcome of the September meeting depends on market conditions. However, Powell did not deny that the indicator could be left unchanged;
- nor did the FOMC give any indication of policy tightening in the next period. This issue has not yet been discussed;
- The Fed is aware of short-term adverse effects, including reduced economic performance. The long-term benefits of slowing inflation outweigh them;
- the regulator will continue restrictive policy “for some time to come”. This is necessary for a clear positive trend to emerge;
- there will probably be no reduction in interest rates this year. At least Powell sees no preconditions for this;
- some FOMC members believe that the interest rate will be lowered in 2024, but this is only possible if the rate of inflation stabilizes. Powell believes the figure will only reach the 2% mark by 2025.
Indices and Bitcoin Reaction
At press time, the S&P 500 as well as the Nasdaq Composite had added 0.24% and 0.3%, respectively, according to Yahoo Finance data. Here is the graph for the S&P500 index:
And for the Nasdaq Composite:
Bitcoin reacted to the interest rate hike with restraint. At the time of writing, the asset is trading at $29,413, according to CoinMarketCap:
Expert Opinion
The head of macroeconomic strategies at Manulife Investment Management, Frances Donald, believes the Fed has moved to a “prolonged hawkish stance,” CNBC reported. According to the expert, the regulator’s next step will be to reduce the interest rate, but it will happen only in 2024.
Donald’s colleague from Goldman Sachs Gurpreet Gill believes that the July Fed meeting was the most certain and uncertain at the same time, reports the publication. The organization shares that the interest rate has peaked. You can learn more about how the interest rate affects the bitcoin rate in our video. Subscribe to Incrypted’s YouTube channel, you’ll find lots of educational content in simple language.
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