Key Takeaways:
- Fed will raise interest rates by another 25 basis points.
- Avoiding recession could prove increasingly challenging.
YEREVAN (Coinchapter.com) – The Federal Open Market Committee (FOMC) confirmed a quarter-point interest rate hike ahead during the latest meeting on March 21-22, intensifying recession fears. The move brings the benchmark funds rate to a range of 4.75% to 5%, while Fed Chair Jerome Powell assured investors that the Fed would use “all of our tools” to keep the banking system safe.
25 bps interest rate hike ahead
Powell also commented that credit standards and credit availability would be affected the longer the banking crisis continues.
It’s too early to say, really, whether these events have had much of an effect.[…] I do still think, though, that there’s, there’s a pathway to [a soft landing]. I think that pathway still exists, and, you know, we’re certainly trying to find it.”
commented the Fed Chair.
Moreover, Fed’s hawkish approach might continue beyond the upcoming 25 bps interest rate hike. According to Powell, the central bank will conduct more rate hikes “if it needs to” in order to fight inflation.
If we need to raise rates higher, we will. I think for now, though […] we see the likelihood of credit tightening. We know that that can have an effect on the macroeconomy.
he said.
Additionally, Chair Powell tried to assure Americans that their bank deposits would be kept safe. However, he did not explicitly note the same about uninsured deposits.
What I’m saying is you’ve seen that we have the tools to protect depositors when there is a threat of serious harm to the economy or to the financial system, and we’re prepared to use those tools. I think depositors should assume that their deposits are safe.
added Powell.
Also read: Federal Reserve Rate Decision Looms on Stock, Crypto amid Banking Crisis.
Why was the FOMC meeting crucial for the markets?
The US banking system suffered heavy losses, and a series of bank runs led by the Silicon Valley Bank implosion. The Federal Reserve announced an emergency loan program shortly after to “restore the trust.”
However, by doing so, the Central Bank risked abandoning its hawkish narrative established by Powell in early March. Per banking giant JPMorgan Chase &Co., the emergency loan could lead to $2 trillion in liquidity flooding the market, undermining the quantitative tightening measures the Fed has implemented since 2022.
On the other hand, Fed’s decision to proceed with the 25 bps interest rate hike could push the US economy into a recession.
Fed has to tread carefully between recession risks and banking rescue.
Prior to the Fed announcement, Stanislav Havryliuk, the chief officer of operations at Zonda, told Coinchapter that the quarter-point interest rate hikes will “ease tension in the banking sector.” However, the expert noted that investors “are likely to see market volatility regardless of the outcome.”
Greg McBride, the chief financial analyst at Bankrate, asserted that “it is as important as ever for savers and borrowers to shop around to get the benefit or minimize the impact of rising interest rates,” as he told CoinChapter.
Returns on savings accounts and CDs [certificate of deposit] are the best in 15 years, but the average credit card rate is now at a record high above 20%, auto loan rates are at a 12-year high and mortgage rates are still north of 6.5%.
asserted McBride.
As the loans get tougher to obtain, basic necessities might not be available to the most vulnerable members of society. However, in an interview with Yahoo Finance, Oppenheimer Chief Investment Strategist John Stoltzfus also asserted that the Fed has tough navigation to do. However, he felt positive that the monetary policy in the upcoming quarter would lead the economy “out of the woods.”
But we feel at this point confident that we are headed out of the woods if not yet out of the woods. And we think the light at the end of the tunnel is not an oncoming locomotive but is, indeed, sunlight.
said the strategist.
Also read: Dollar Index Rallies after Powell Speech – Stocks Plummet – Recession Alert ON.
