Fed raises rates for first time since 2018; Bitcoin and S&P 500 rise

Following the March 16-17 meeting, the Fed for the first time since December 2018 raised the policy rate by 25 basis points — to 0.25-0.50%. By year-end it could reach 1.9% due to inflation running at a 40-year high, according to the Fed’s projections.

In the accompanying statement, monetary authorities noted that geopolitical tensions could push consumer prices higher. The inflation forecast for this year has been raised from 2.6% to 4.3%, for next year from 2.3% to 2.7%. The US GDP growth forecast for 2022 was revised down from 4% to 2.8%.

Committee participants indicated that the Fed’s balance sheet reduction could begin at one of the upcoming meetings. Chair Jerome Powell reminded that the process would proceed faster than in the past. A more aggressive rate path is also possible. Such measures may be needed to prevent inflation from becoming entrenched at a higher level.

The negative market reaction to the Fed results was short-lived. Some investors did not rule out a 50-basis-point increase (only one of the nine committee members voted for it), and Powell’s ensuing press conference did not differ in tone from his earlier comments on further actions.

The S&P 500 closed up 2.24%, with futures on Thursday morning holding yesterday’s gains. Gold rose by 0.5%.

Bitcoin over a 24-hour period was up 3.4% — on the news the price dipped to $39,100, then briefly traded above $41,000.

The rate futures market, with a 57.4% probability, expects that by year-end the rate will be 2%-2.25% per year, compared with the current 0.25%-0.5%.

Jeffrey Gundlach, chief executive of DoubleLine Capital, in a CNBC comment forecast a renewed stock-market decline after the current near-term rebound.

In the expert’s view, the Fed is losing ground in the inflation fight. Against the backdrop of a flattening U.S. Treasury yield curve, he allowed for a recession in the U.S. economy in 2023. The “Bond King” said that, given the current conditions, he prefers Bitcoin to gold.

Earlier, the head of DeVere Group forecasted Bitcoin to reach $50,000 in March.

Earlier, Elon Musk stated that he was hodling cryptocurrencies in anticipation of rising inflation.

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