The federal reserve is expected to raise the interest rate by a quarter point on Wednesday. According to the sources, the central bank will release its projection about the economy amid the inflation and bank crisis. Economists believe that the Fed’s decision to raise interest rates comes during uncertainty when the whole country goes through a financial crisis. As per the information released by the Federal Open Market Committee(FOMC), the interest rate hike can be 4.75% to 5%.
However, another challenge for Fed officials is to reassure investors about the reason behind the sudden surge in interest rates. Recently, Silicon Valley Bank collapsed, raising questions about the banking system and the security of people’s funds. The value of the USD index touched its lowest point of 102.59 while its previous triple tops, seen at 105.63 to 105.88, could provide a resistance zone. After the release of the Fed statement on hike rates, the US dollar failed to make headway and dipped to its lowest value since mid-February.
Michael Gapen, Chief U.S. Economist At Bank of America, said, “The broader macro data shows some further tightening is warranted.” In his speech, Gapen also stated that the Fed would have to explain its double-barrel policy, and investors would have to seek assurance from Fed chairman Jerome Powell that the central bank has internal problems.
In February, Fed President Loretta Mester said at the Global Independence Center Conference, “the central bank likely should have lifted interest rates more than it did early this month, and warned that additional hikes in borrowing costs are essential to lower inflation back to desired levels.” The US economy has been going through turmoil, and the market whipsawed in the last few months. It will be challenging for the Fed to explain the reason behind dramatically hiked rates to investors and depositors.