Federal Reserve Raises Rate By 25 Basis Points

Key Insights

• Fed raised the target range for the federal funds rate to 475 – 500 bps. 
• The central bank noted that additional policy firming might be appropriate. 
• Fed highlighted the strength of the U.S. banking system. 

On March 22, the Fed issued FOMC Statement. The Fed decided to raise the target range for the federal funds rate to 475 – 500 bps, in line with the market’s expectations.

The central bank noted that some additional policy firming might be appropriate to fight inflation. Speaking about the recent developments in the regional banks sector, the Fed commented: “The U.S. banking system is sound and resilient. Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation”.

The Fed decision met analyst estimates, and traders will wait for Jerome Powell’s press conference, which starts soon. At first glance, the FOMC Statement is rather dovish. The Fed commented on the banking crisis and noted that “some additional policy firming” might be necessary, which means that the Fed is not ready to put too much pressure on the economy due to the recent developments in the banking sector.

S&P 500 tested session highs near 4035 after the Fed decision as traders bet that Fed will be more dovish than previously expected. U.S. Dollar Index pulled back towards the 102.50 level as Treasury yields declined. A combination of weaker dollar and lower yields was bullish for gold, which moved towards the $1960 level.

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