The Fed has finally announced its highly anticipated interest rate decision.
— Bitcoin Sistemi (@bitcoinsistemi) March 22, 2023
The Fed increased rates by 25 basis points. Expected +25 basis points.
Here is Bitcoin’s first reaction to the Fed’s interest rate decision:
Before the interest rate decision, Bitcoin price was following a stable course just above $28,000.
The expressions in the FED text are as follows:
“Some additional policy tightening may be appropriate,” the Fed said.
In the statement published by the FED, the statement that “continued increases in the target range” would be appropriate was removed and the statement “some additional policy tightening may be appropriate” was added instead.
FED funds futures traders see the prospect of a 25 basis point increase as 62% in May.
The Committee will closely monitor the incoming data and evaluate its effects on monetary policy.
The Fed also addressed the banking crisis: “The US banking system is robust and resilient. Recent developments are likely to lead to tighter credit conditions for households and businesses and put pressure on economic activity, hiring and inflation. The extent of these effects is uncertain.
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What were the General Expectations and Latest Situation in the Market Before the Decision?
Before the Fed’s interest rate decision, the market predicted a 25 basis point increase with 85% probability and no interest rate increase with 15% probability.
Before the banking crisis unfolded, these possibilities looked quite different. The probability of the FED to increase by 50 basis points was 24%, the probability of a 25 basis point increase was 76% and the probability of a pause was 0%.
Before the recent bank failures, some economists and policy makers had called on the Fed to stop raising interest rates, fearing it could cause a recession.
Despite signs that the US economy is starting to cool and rising prices are slowing, Fed officials, including Chairman Jerome Powell, signaled that the central bank could raise interest rates by as much as 50 basis points at its March meeting to continue reining in stubborn inflation.
However, after the recent bank bankruptcies, Goldman Sachs economists said they did not expect the Fed to raise interest rates in March, fearing that it would put undue stress on the banks.
The banking crisis did not prevent the European Central Bank from raising interest rates by 50 basis points at its meeting last week. Even as Credit Suisse sought to raise capital to support liquidity, markets were generally unaffected by the ECB decision.
At the last meeting of the FED between January 31 and February 1, interest rates were increased by 0.25 points.
*Not investment advice.