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On Wednesday, the Federal Reserve continued with the most aggressive interest rate hike we have seen in 22 years and suggested the possibility of further rate increases.
Here are some important considerations:
- The Fed’s Open Market Committee unanimously decided at its meeting this week to bump the federal funds rate by 25 basis points from 5.25% to 5.5%, sending rates to their highest level since 2001.
- In its announcement, the Fed said it will continue to “assess” the macroeconomic and fiscal backdrop, signaling further hikes may be on the horizon.
- Stocks and crypto were largely flat immediately after the announcement.
What does this mean for the markets?
There is a high probability we may see further rate hikes in the coming months. The cadence of these rate increases will primarily depend on inflation trends. According to FedWatch, there's a 24% chance of another rate hike during the next meeting scheduled for September.
What is the implication of these rate hikes? The last time interest rates were this high was in February 2001 and as we saw in 2001, higher interest rates mean that borrowing money becomes more expensive typically resulting in less money being invested into assets like stocks and crypto.