Federal Reserve Hikes Rate by 25bps to Keep Inflation at Bay, Aims for 2% Inflation Rate by 2025

In response to the turmoil in the U.S. banking industry over the past two weeks, the Federal Reserve Board on Wednesday raised the federal funds rate 25 basis points (bps ) increase in the federal funds rate.

The Fed raised rates despite the catastrophe in the U.S. banking sector

It has been a rough two weeks for the U.S. economy after a drop inSilvergate Bank , Silicon Valley Bank and Signature Bank“. After these bank failures occurred, the Federal Reserveannounced the creationof the Bank Term Funding Program (BTFP)to bail out Signature Bank and Silicon Valley’s uninsured depositors. After the turmoil in the banking industry, some experts suspected that the Fed would not raise its benchmark interest rate this month.

At 2 p.m. EST on Wednesday, the Federal Open Market Committee (FOMC)revealed that it would raise rates by 25 bps.” The Committee aims to achieve maximum employment and inflation at a 2% rate over time,” the FOMC said.” In support of these goals, the Committee decided to raise the target range for the Federal Funds rate from 4-3/4 to 5%. The Committee will closely monitor incoming information and assess its impact on monetary policy.”

The Fed also released the central bank’s “Summary of Economic Projections“. This suggests that inflation could reach 2.1% by 2025 and 2% in the long run; by 2025, the FOMC forecasts that the Federal Funds rate will be cut to 3.1%.The FOMC’s statement and forecast report led the stock market to rally on this news The U.S. economy rallied sharply on the news, with three of the four U.S. benchmark indices in the green.

Crypto assetsfell after a small increase from the Fed, with bitcoin (BTC) at $28,700 at 2:15 pm EST Wednesday, approaching the $29K range It approached the $29K range. However, by 2:45 p.m.BTCwas all the way down to the $27,876 per unit range. Currently,the USD value of BTCis hovering just above the $28K zone.

Crypto reaction to the Fed news was mixed, but precious metals held strong. Gold and silver both jumped on the Fed rate hike and roseThey were 1.6%-2.5% higher

against the greenback. Overall, the FOMC statement noted that recent indicators indicate “modest growth in spending and production.”

In addition, the Fed stated that “job growth has picked up in recent months and is continuing at a solid pace, (and) the unemployment rate remains low, while inflation remains elevated.”

After the FOMC press conference, Fed Chairman Jerome Powell asserted that the U.S. banking system is “sound, resilient, and well capitalized.”