As expected, the US Federal Reserve has decided to leave the interest rate unchanged, marking the first time since March 2022 that the central bank has refrained from raising rates. This decision comes as a break in a series of ten consecutive interest rate hikes implemented by the Federal Reserve to rein in escalating inflation.
Federal Reserve Chair Jerome Powell, in news conference, emphasized the institution’s unwavering commitment to its dual mandate of maximum employment and stable prices for the American people. Powell acknowledged the hardships caused by high inflation and expressed the Federal Reserve’s determination to bring it back down to their target of 2%.
Industry leaders from the crypto market were also expecting this pause from the Fed.
The crypto market remained upbeat as crypto community is anticipating a breather from continuous rate hikes in today’s FOMC meeting, Shivam Thakral, CEO of BuyUcoin, told AlexaBlockchain earlier today.
Since early last year, the Federal Open Market Committee (FOMC) has pursued a significantly tightened monetary policy. With the policy interest rate raised by a total of five percentage points and a continued reduction in securities holdings, the FOMC aimed to curb inflationary pressures and stimulate a sustained period of strong labor market conditions.
However, the recent decision to maintain the interest rate at its current level reflects the cautious approach taken by the Federal Reserve. Powell highlighted the considerable ground covered in tightening policy, the uncertain time lags of monetary policy on the economy, and potential headwinds stemming from credit tightening. These factors led to the FOMC’s decision to hold the line for now.
The US economy experienced a noticeable slowdown last year, and while recent indicators suggest a modest expansion in economic activity, challenges persist. Consumer spending has shown signs of improvement this year, but the housing sector remains weak due to higher mortgage rates. Business fixed investment has also been impacted by higher interest rates and slower output growth.
Given the uncertainties surrounding the economic landscape, including tighter credit conditions and below-trend growth, the Federal Reserve opted for a cautious stance. Powell indicated that the effects of the previous monetary restraint measures are yet to be fully realized, particularly in terms of curbing inflation. The central bank is acutely aware of the potential risks that high inflation poses to their mandate and the American public.
Looking ahead, the majority of FOMC participants still anticipate further rate increases to be appropriate in order to bring inflation back down to 2% over time. However, the decision to maintain the interest rate unchanged at this juncture allows the committee to gather additional information and assess its implications before deciding on further policy firming.
The Federal Reserve’s projections indicate that if the economy evolves as anticipated, the appropriate level of the federal funds rate could reach 5.6 percent by the end of this year. Nevertheless, these projections are not set in stone, and future policy adjustments will depend on the overall economic data and its impact on the outlook for economic activity and inflation.
Commenting on the development, Ruslan Lienkha, chief of markets at YouHodler, said: “It is too early to say that Powell is winning the fight against inflation. I don’t think the way to bringing inflation to 2% will be so smooth. The main concern is about the too-hot labor market at the moment. Therefore, the Fed can later decide to continue the rate increase or keep high rates for a significantly long time – such scenarios are quite possible and might obviously disappoint financial markets in one or a few months.
“As for crypto, the major cryptocurrencies will follow traditional markets. The only question is the degree of this correlation, which we still need time to figure out,” Ruslan added.
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