The Federal Reserve raised the federal funds rate by 25 basis points, leading the S&P 500 to rise by 0.3% and the Dow by one-tenth of a percentage point.
The latest hike takes interest rates between 4.75% and 5%, with the Fed predicting that failures of many US banks will spur a slowdown in spending and economic growth.
Fed changes ‘ongoing growth’ narrative
Following the news, bitcoin rose slightly from $28,400 to $25,585, while ETH rose from $1799.21 to $1,811.01.
Notably, the central bank changed its position on the pace and aggressiveness of further moves, Chairman Jerome Powell suggested in an appearance before Congress earlier this month. Replacing the phrase “ongoing growth” with “additional policy tightening” suggests the central bank may hold off on growth at future meetings.
The Fed also predicted slower US economic growth in 2023.
Notably, the interest rate decision was taken without considering the US personal consumption expenditure index, the Fed’s preferred inflation gauge, through February 2023. PCE will be issued on March 31, 2023.
Powell’s semiannual monetary policy report to Congress on March 8, 2023, suggested that a tight US labor market could result in a continuation of aggressive monetary policy that would lead to an increase in the central bank’s terminal rate. The terminal rate is the interest rate that will drive inflation to the Fed’s 2% target.
Bank failures tie the hands of the Federal Reserve
The Federal Reserve began raising interest rates in the US about a year ago, with four consecutive 0.75% increases fueling recession rumors.
Powell said the recent collapse of Silicon Valley and Signature Bank also affected the size of the 25 basis point increase.
The Federal Deposit Insurance Corporation placed both banks into receivership earlier this month amid a flurry of withdrawals that tested the firms’ risk management.
Shortly after Powell’s press conference, US Treasury Secretary Janet Yellen stated that the FDIC would not provide a higher limit for backstop bank deposits.
Following Yellen’s speech, bitcoin fell to nearly $27,000 before rebounding to $27,505. ETH dropped to $1,728, but has since recovered to $1,747.
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