After the FED’s interest rate hike, which came from the lowest level of expectations, the US Dollar regressed by a measure, while gold prices are on the rise. Powell’s statement that the tightening will continue, but that it will not go beyond the 50 basis point increase further strengthened the gold prices. This is the first time in 22 years that such a high interest rate increase has been made.
The Fed increased interest rates from the lowest level of expectations in the markets. There was a 50 basis point increase from the FOMC meeting, which was said to be up to 100 basis points in the markets and where the expectations of 75 basis points were not less.
Powell, who was in front of the cameras after the interest rate decision, stated in a clear language that the tightening will continue for at least two more months, but that it will not go beyond 50 basis points. Powell’s statement that a 75 basis point increase was never on their agenda was perceived as a very aggressive approach to tightening. After these messages, the rise in gold prices gained strength, while the decline in the US Dollar became clearer.
After the Fed’s interest rate decision, there are lively moments in the markets. The fact that the rate of increase in interest rates occurred at the lowest rate in the markets caused price increases in commodities such as gold.
US Dollar Index is down one measure. US Dollar Index at 103.45 came below 103.20. After Powell again, the decline in the US dollar reached 1 percent. The index fell below 102 points.
Euro/Dollar parity also climbed from 1.0540 to above 1.06 after the decrease in dollar.
Dollar/TL is also declining with the weakening of the US Dollar. The dollar/TL, which started the day close to 14.85, came under 14.75.
The ounce price of spot gold climbed to $1,875 from $1,865 where it was before the decision. After Powell’s statements, gold rose above $1,880.
Brent oil, on the other hand, with the rise that started in the evening hours, with an increase of around 5 percent daily, is over 110 dollars…
THE FASTEST INTEREST INCREASING SINCE 2000S
Kovid-19 epidemic The Fed, which pulled the policy rate to the range of 0-0.25 percent in its first months, started buying assets in order to reinforce the economy. The Fed’s balance sheet had almost doubled during the epidemic period, reaching nearly $9 trillion. While the rise in inflation that came with the rapid economic recovery forced the Fed officials to change their monetary policy, the bank started to decrease the rate of asset purchases with the November meeting last year, and increased the rate of reducing its asset purchases at the December meeting.
At the March meeting, the Fed decided to increase interest rates for the first time since 2018, with an increase of 25 basis points. The last interest rate hike by the bank was made in November 2018 in order to end the expansionary monetary policies that it took in the wake of the global financial crisis. The 50 basis point increase decided by the bank at the May meeting was the fastest rate increase since the 2000s. Inflation in the US reached 8.5 percent annually in March, the highest level since December 1981.
“WE ARE EXTREMELY CAREFUL AGAINST INFLATION RISKS”
US Federal Reserve (Fed) Leader Jerome Powell held a press conference after the Fed increased the policy rate by 50 basis points.
Stating that inflation is very high and they are aware of the difficulties it causes, Powell stated that they acted quickly to reduce inflation.
Powell, emphasizing that economics has gone through a lot in the last 2 years and has proven to be resilient, noted that reducing inflation is very valuable for a strong labor market conditions that benefit everyone.
Pointing out that the labor market is extremely tight and inflation is very high, Powell said that the interest rate has been increased by 50 basis points in this direction and it is foreseen that it will be appropriate to continue the increases in question.
Powell stated that they started the process of reducing the size of the bank’s balance sheet significantly.
Stating that despite the decline in economic activity in the first quarter, household expenditures and business fixed investments continued to increase rapidly, Powell noted that the labor market continues to strengthen and is extremely tight.
Powell pointed out that the supply of labor remained finite, and said that bosses had a hard time filling job vacancies, and prices had risen the fastest in many years.
Pointing out that inflation continues to stay well above the long-term 2 percent target, Powell said that supply considerations took longer than expected, and price pressures spread to a wider range of goods and services.
Powell stated that the increase in oil and other commodity prices caused by Russia’s attack on Ukraine also put additional pressure on inflation. In addition, Powell noted that the quarantine measures taken against the Kovid-19 outbreak in China are possible to worsen supply chain disruptions.
Pointing out that the war and related developments can restrict economic activity abroad and further disrupt supply chains, Powell said that this is likely to affect the US economy through trade and other channels.
Powell emphasized that they are extremely careful against the risks posed by high inflation and that they attach great importance to restoring price stability.
“75 BASE POINT INCREASE IS NOT WHAT WE THINK AS EFFECTIVE”
Stating that they are on the way to bring the policy rate to more normal levels, Powell said, “Assuming that the economic and financial conditions are developing in line with the expectations, in the next few meetings, 50 There is broad consensus in the committee that additional base point increases should be on the table.” he said.
Powell stated that they aim to significantly reduce the size of the bank’s balance sheet over time in a predictable form.
Reiterating that they will be ready to change every detail of their approach in the light of economic and financial developments, Powell said, “Making appropriate monetary policy in this unknown environment requires accepting that the economy often develops in unexpected forms ” he said.
Powell mentioned that they will try to avoid creating uncertainty in an already incredibly violent and unknown period.
On the question of whether there would be an increase in the rate of more than 50 basis points, Powell said, “A 75 basis point increase is not something that the Committee considers effectively.” said.
Powell reiterated that the economy is strong, suggesting that he thinks they have a good chance to restore price stability without a recession.