Market Analysis

Fed Raises Rates By 75 Basis Points


The Fed is committed to fighting inflation, even at the risk of tipping the economy into recession.

Key Takeaways

  • The Fed raised rates by 75 basis points today, the biggest hike since 1994.
  • The decision comes as the inflation in the United States officially hits a forty-year high.
  • The market reacted negatively to the announcement, with Bitcoin and Ethereum losing 8% and 13% of their value on the daily.

The U.S. central bank announced today it will be raising interest rates by another 0.75% in an effort to combat raging inflation.

The Largest Hike Since 1994

The United States Federal Reserve raised interest rates today for the third time in three months.

During today’s Federal Open Market Committee meeting, Fed Chairman Jerome Powell announced that the U.S. central bank would be raising its funds rates by 75 basis points, or 0.75%, bringing its benchmark short-term rate to a range of 1.5% to 1.75%. The decision was the result of a vote from the Federal Open Market Committee, the bank’s monetary policymaking body.

Markets responded negatively, though not catastrophically, in short term. The S&P 500 and Nasdaq-100, which were up by 0.85% and 0.75% in the hour before the meeting, were at 0.50% and 0.95% at the time of writing. Bitcoin and Ethereum, already struggling at -6% and -10% on the day, fell to -8% and -11% respectively. 

The Federal Reserve has been raising interest rates in an effort to combat inflation in the U.S. Economists were surprised when the Consumer Price Index (CPI) officially hit a four-decade high of 8.6% in May. Food, shelter, and gasoline prices have been the highest to rise, according to data published by the U.S. Bureau of Labor Statistics.

The CPI print signaled the central bank would likely keep pursuing its quantitative tightening policy, making credit more expensive and shrinking the circulating supply of money within the economy. Powell had previously expressed his concern that raising rates too high and too fast could end up triggering a recession.

The policy has already resulted in significant market downturns, with the SPX and NASDAQ having lost about 22% and 31% of their late 2021 all-time high values. Bitcoin and Ethereum have experienced much worse turmoil and are currently trading at around $20,700 and $1,080; a decrease of 69% and 77% respectively.

The 75-basis point hike marks the Fed’s largest interest rate raise since 1994. It had previously raised rates by 0.25% on Mar. 16 and by 0.50% on May 4, which were the first rate hikes since 2018. More raises in rates are expected through the end of the year.

Disclosure: At the time of writing, the author of this piece owned ETH and several other cryptocurrencies. 

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