2023-3-23 22:25 |
The US Federal Reserve just raised its interest rate, announcing a 25 basis point hike on Wednesday afternoon. With this, the Fed has pushed the federal funds rate to the 4.75%-5% range, its highest level since October 2007.
In a press release, the Fed noted the rate hike was down to fact that the US inflation remaining elevated. The 0.25% raise comes after a few days of madness in the banking sector, which remains a major issue even as the central bank made its intentions known.
Was this really a “Big Decision” for the Fed?Nigel Green, the CEO of financial advisory firm deVere Group says the US central bank’s “quarter point hike” wasn’t really a big decision after all.
In comments shared with Invezz after Fed Chair Jerome Powell’s announcement on the close of Fed’s two-day FOMC meeting, Green notes that expectations of what Powell would announce had shifted throughout the month.
He said:
“After Powell told a Senate committee earlier in March that inflation was still too high, expectations went from 25 basis points to 50 basis points. But then, days later, with the collapse of Silicon Valley Bank and Signature Banks, sparking fears about a banking crisis and a potentially global negative impact, some commentators expected no rate increase in March based on the news.”
In this outlook, the deVere CEO says the Fed faced some sought of dilemma – how to tame “stubbornly high inflation” while at the same time not causing a meltdown in the banking system to risk further financial instability. In short, the market had come to dub the Fed’s highly anticipated policy announcement a “The Big Decision”
But after the 0.25% raise, is it still a big decision? Green explained why the deVere Group feels it wasn’t.
“We are of the opinion there was not really a Big Decision here. If they did more than 25bps, it could trigger more instability and to do nothing could be seen as negligent.”
The Fed “hasn’t learnt its lesson”According to the deVere executive, the Fed must now “proceed with caution.” He says the central bank’s past missteps could come to haunt it.
Green says suggestions are that the US Federal Reserve has not learned from mistakes made in the 1980s. The lessons would have been pivotal after the COVID-19 outbreak.
“The Fed didn’t act quickly enough to tame inflation from the beginning. They resisted raising interest rates from near-zero levels for most of 2021, even as prices began shooting up due to pandemic-related supply chain snarls, Covid outbreaks and a persistent labour shortage, amongst other issues,” he notes. “This all leads to sky-high inflation – and especially wage inflation.”
The market’s reaction to the FOMC announcement saw stocks and crypto swing lower after an initial bout of gains. The S&P 500 was at 3,985.65, or 0.43% down at around 3:10 pm ET, while Bitcoin was just below $28,000. As highlighted earlier, BTC price had spiked to $28,900 ahead of the FOMC decision.
The post deVere Group CEO says Fed’s “Big Decision” on rate hikes was really no decision at all appeared first on Invezz.
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