The FOMC voting committee (composed of 12 members responsible for voting on open market operations, full name: Federal Open Market Committee, hereinafter referred to as: FOMC) ended its two-day interest-bearing meeting at 2 am Beijing time today , announced an interest rate hike of 50 basis points, or 0.5%, in line with market expectations. This is the second rate hike in a planned seven rate adjustments this year.
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As the largest rate hike since 2000, the market is fully prepared for it. As Federal Reserve Chairman Powell hinted at an adjustment of 50 basis points in early April, the three major indexes began to decline, indicating that the market has priced in the expected rate hike.
The price of Bitcoin ( BTC ) has fallen more than 40% since November 2021, when the Federal Reserve was scheduled to start raising interest rates. After the FOMC's March meeting, BTC fluctuated at $41,000. The FOMC's May meeting put the coin below $40,000.
Due to the impact of the epidemic, the Federal Reserve has kept its benchmark interest rate at 0.25% to stimulate the economy. Since the outbreak of the epidemic, the Federal Reserve has injected capital into the market through large-scale purchases of junk bonds to maintain business operations and protect the financial market, making its balance sheet as high as $9 trillion. Under the effect of large-scale bond purchases, the number of infections in the United States and the three major stock indexes hit new highs at the same time. Due to the large amount of liquidity in the market, the inflation data announced in March was 8.5%, reaching the highest level in 40 years. The Fed has been criticized by many economists for misinterpreting the data as "temporary inflation caused by supply shortages." Then, the ensuing conflict between Russia and Ukraine brought a new round of pressure on the global economy and energy supply. As a result, the central banks of the United States, the European Union and Australia began to urgently discuss the issue of raising interest rates, and the cycle of interest rate hikes began.
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At 2:30 in the morning, a monetary policy press conference was held as scheduled. Federal Reserve Chairman Powell said: The Fed is "acting quickly" to reduce inflation. Broadly speaking, the central bank said a 50-basis-point increment would help bring inflation down to its 2 percent target range, he said. Chairman Powell also announced that he would start selling some of the balance sheet of bonds and mortgage-backed securities (shrunk: shrinking the central bank's balance sheet). Finally, he added that the committee is not considering raising interest rates by 75 basis points, but indicated that future interest rates may be adjusted to 25 basis points. The financial market and the encryption market rose as soon as the words fell due to hints that the intensity of interest rate hikes may be reduced. The threat posed to the market by the decision to raise interest rates and shrink the balance sheet seems to have passed.
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