Powell Announces 50BPS Interest Rate Hike in 2022’s Final FOMC Meeting

The Federal Open Market Committee met for the last time in 2022 on December 13th and 14th. The second day of the meeting brought the announcement of another interest rate hike—this time by 50BPS, as most have been expecting/yet again by 75BPS, despite what most have been expecting.

FED Raises Interest Rates by 50BPS

FED has been raising interest rates throughout 2022, with the four previous increases coming at 75 BPS.  While Chair Powell’s speech following the latest FOMC meeting indicated this year might see another such hike, a more recent appearance cemented hopes for a slowdown.

In remarks delivered at the Brookings Institute on November 30th, he stated that “it makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down”. The Chairman however also cautioned that “despite some promising developments, we have a long way to go in restoring price stability.”

Finally, November’s CPI of 7.1 percent made a 50 BPS rate hike the most likely outcome of the FOMC meeting.  Therefore, it came as little surprise when the Federal Open Market Committee announced they were slowing down rate increases to 50 basis points in December. This latest development brings the target range to 4.25%-4.5%

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2022—the Year of Record Inflation

While the current heightened inflation had its start in 2021, it has done most of the damage in 2022. In September, Eurozone inflation hit an all-time high of 10%, and while the US numbers haven’t been as high, they were still consistently above the worrying 7%.

Both traditional and decentralized finance have been hit hard. S&P 500, one of the major indices, is down 15% year to date, and the Dow Jones Industrial Average fell by over 6% since January. The tech sector took a particularly major beating with the stock price of META dropping 63%, and Elon Musk’s Tesla fell by 60% YTD.

Cryptocurrencies didn’t escape the turmoil either and entered what has been termed the “crypto winter”. Both Bitcoin and Ethereum, the world’s foremost digital currencies, fell by over 60% since the start of the year. However, the sector also suffered from several major scandals including the LUNA collapse, and the bankruptcy of FTX which ultimately led to the arrest of its founder Sam Bankman-Fried.

For its part, the FED has been increasing interest rates throughout the year in an attempt to bring inflation down to 2%. Every FOMC meeting apart from January brought rate hikes. Disregarding December, there have been four 75 basis point increases, one of 25 BPS, and the May hike came at 50 BPS.

This is a breaking story and will be updated as new details emerge.

Do you think inflation will be brought down to the target of 2% in 2023? Let us know in the comments below.