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Jerome Powell has finally done it. After months of spreading fear among the markets, the Fed has finally raised interest rates.
On Wednesday, Powell announced that the Fed will raise interest rates by half a percentage point to between 0.75% and 1% – the highest level in over two decades – to combat inflation, which is at a 40-year high.
“Inflation is much too high and we understand the hardship it is causing. We’re moving expeditiously to bring it back down”, Powell said during a news conference yesterday.
Although markets traditionally tend to despise high interest rates, the Fed’s announcement sent both the stock market and the crypto market upwards.
Tech titans Apple (AAPL), Tesla (TSLA) and Google (GOOGL) all saw their share prices jump 4.1%, 4.77% and 4.2% respectively.
Bitcoin made a 6% leap, surpassing the US$40,000 mark – a level it had fallen below last month.
Despite the Powell’s rate hike being the highest since 2000, both markets received his news well for three main reasons:
- Even though a 0.5% rate hike is painful to hear, it was widely expected by the markets. Powell’s stern language surrounding inflation over the past few months has led the market to brace themselves for the worst, thus pricing in the expected hike.
- Powell ruled out the possibility of higher hike increases. In his announcement, Powell said “a 75-basis-point increase is not something that the committee is actively considering. I think expectations are that we’ll start to see inflation, you know, flattening out.” This means the market can rest assured that the worst has already happened and further hikes are out of the question.
- Uncertainty is over. Just like a debilitating anxiety disorder, the market is incapable of dealing with uncertainty. Months of not knowing when or how much the Fed will increase rates have dulled the market’s mood. Irrespective of how much the Fed has increased rates by, Powell has put an end to the market’s uncertainty and relieved it from its anxiety. For better or worse markets can now adjust accordingly to the Fed’s imposed interest rate hike.