The U.S. Federal Reserve has increased the benchmark interest rate by 0.5%. This is the largest increase since 2000 (22 years) bringing the benchmark rate between 0.75% and 1%.
The interest increase comes as inflation in the U.S. is running at 8.5%. The Fed has also indicated that they will be reducing the balance sheet in conjunction with the rising rates as they are getting aggressive in fighting inflation which is at a 40-year high. The target inflation rate is around 2% which the Fed deems to be a stable rate.
Interest Rate Impact
This rate increase was largely expected and with some even predicting the Fed may consider raising by 0.75%. Market were relatively relieved that the increase was 0.5% and Fed Chairman Jerome Powell indicated that a 0.75% increase was not actively being considered.
It will be a delicate balance for the Fed to fight inflation but at the same time not putting the economy into a recession. The throttled supply chains from the pandemic as well as the conflict in Ukraine as not helped the inflation figures as they have added to the fuel of rising costs.
Where do you think the rates will reach by the end of 2022? Comment below.
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