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In the biggest hike since 1994, the US Federal Reserve on Wednesday hiked the interest rate by 75 basis points in order to tighten the noose around inflation. The Markets had expected the 75 basis points hike and priced in several more after a surprisingly hot inflation reading last week.
Officials agreed to a 0.75-percentage-point rate rise at their two-day policy meeting that concluded Wednesday, which will increase the Fed’s benchmark federal-funds rate to a range between 1.5% and 1.75%, reported the Wall Street Journal
Meanwhile, the dollar retreated from a 20-year high on Thursday after the Federal Reserve delivered its biggest rate hike in decades but then tempered its outlook by telling investors that such sharp moves higher were unlikely to become a habit, said Reuters.
“Keeping in mind the level of inflation in the US, it is no brainer that the US Fed will hike the rate by 75-bps. But this is not the last 75bps hike we expect from the Fed. There is a very high probability that the Fed could hike by another 75-bps by July,” Sunil Damania, Chief Investment Officer, MarketsMojo, had said.
Inflation is one primary concern that will keep the Fed on its toes, hence we are likely to see a couple more hikes post-July as well, the expert added.
Vinod Nair, Head of Research at Geojit Financial Services, had said a aggressive rate hike of 50-75 bps is mostly factored by the market but updated economic and interest rate forecasts to be detailed by the central bank’s will closely control the future trend.
Market analyst Ajay Bagga had also said that there is a 98 per cent probability that the US Federal Reserve may hike interest rates by 75 basis points, while 2 per cent chances are that they may resort to a rate hike of 100 basis points.
Meanwhile, Fed members also drastically lifted their projections for the peak in the benchmark funds rate, with the median forecast having it around 3.8% in 2023, much higher than the 2.8% peak they had last projected in March.
That, however, was met with initial relief as it was a bit lower than the 4%-and-above that futures markets had implied earlier this week.
More than the 75bp hike in Fed funds rate, which was expected, it was the Fed chief comments and guidance that have calmed the markets, temporarily, said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services. “Jay Powel’s remark that “we have the tools and resolve to achieve price stability” reflects confidence in containing inflation. His guidance of 3.4 percent rate by end of 2022 and 3.8 percent terminal rate in 2023 refect the determination to fight inflation,” he said.
However, the presently unknown factor is whether the rising rates will tip the US economy into recession, the expert added.
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