Powell describes the interest rate increase of the FED by 0.75 % as unusually high and warns of slowing down the economy

Powell describes the interest rate increase of the FED by 0.75 % as unusually high and warns of slowing down the economy

The Federal Reserve announced an rate increase of three quarters of percentage points on Wednesday, which is the strongest rate increase since 1994. The central bankers also predict higher unemployment rates, persistently higher prices and slowing down the economic activity.

The overall economic activity seems to have recovered after a slight decline in the first quarter, wrote Fed representative in her explanation, which was published on Wednesday at the end of its two-day monetary policy session. The workplace growth has been robust in the past few months and the unemployment rate has remained low, the explanation said, but Russia's invasion in Ukraine and persistent problems in the supply chain have contributed to a continuing inflation.

"Inflation remains well above our long-term goal of 2 %in the 12 months to April, the PCE prices rose by 6.3 %, except for the volatile food and energy categories," said FED chairman Jerome Powell during a press conference after the publication of the statement .

After the publication of the Federal Open Market Committee, stocks acted largely sideways, with the S&P 500 lost 0.5 % and the NASDAQ increased around 0.2 %.

"Markets are loathing uncertainty and unpredictability," said Josh Olszewicz, Head of Research at Valkyrie Investments. "Today's increase by 75 basis points is a acceleration of the interest rates and possibly a higher target interest rate of the Fed between 2.75 % and 3 %."

Bitcoin and Ether extended their downward movement in the run-up to the Fed announcement.

"Digital assets have correlated heavily with the US financial markets in the past few months, both of which are bleeding further down," said Olszewicz. "A decline in downward volatility is probably only achieved by a break or reversal of the current FED policy and direction."

Central bankers expect the federal funds to be 3.4 % at the end of 2022 compared to their March estimate of 1.9 %, the explanation says.

All 18 Fed representatives who took part in the meeting expect that the central bank will raise interest rates to 3 % before the end of the year projections from the meeting show. The members also lowered their expectations of gross domestic product for 2022 from an expected increase of 2 % to 3.3 % to an increase of 1 % to 2 %.

This is a developing story.

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