- Consumers and companies are likely to reduce their borrowing and spending.
- The central bank had predicted an interest rate increase of 100 basis points.
Second time in a row, the Federal Reserve hiked its benchmark interest rate by whopping three-quarters of a percentage point to combat excessive inflation. In a move that impacts many consumer and commercial loans, the Federal Reserve will boost its benchmark rate to a range of 2.25 percent to 2.5 percent, the highest level since 2018.
As inflation rose to 9.1 percent year-over-year, the central bank’s decision underlines its attempts to rein down price rises throughout the economy. Mortgages, car loans, and business loans become more expensive because of the Fed’s decision to raise interest rates. Consumers and companies are likely to reduce their borrowing and spending as a result, resulting in lower inflation and a cooling economy.
Positive Impact on Crypto Sector
The Fed’s latest move comes as more Americans express anxiety over growing expenses. The central bank had predicted an interest rate increase of 100 basis points. Fed Chair Jerome Powell indicated the central bank would contemplate “an even larger” increase in the future if necessary.
The government, on the other hand, believes that the world economy will soon be slammed by a recession. The Fed’s move is partly a response to a probable economic downturn. Cryptocurrency markets throughout the world responded positively to the news. After the news came out, Bitcoin gained 8.87 percent, while Ethereum had risen by 16.2 percent and the global market cap went above $1 trillion mark again as per CMC.
A “neutral” short-term rate, according to Fed officials, is one that neither stimulates nor restricts economic growth. Fed Chair Jerome Powell has said that the central bank hopes to attain neutral on its core rate as soon as possible.
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