By
Bena Ilyas
May 17th, 2024
Fed chair Jerome Powell and the rest of the committee are convinced of slower economic growth in the coming quarters amid softening labor market conditions.
For the second consecutive meeting, the United States Federal Reserve Committee chose to hold its prior interest rate hikes at between 5.25 and 5.50 percent during Wednesday’s largely anticipated FOMC statement. The Fed Chair Jerome Powell highlighted in a press release that the committee is still in discussions about whether federal funds rates need to be hiked further to contain the high inflation. Moreover, the fast-changing global economic outlook, which is fueled by the ongoing war in Ukraine, the Middle East crisis in Israel, and the notable growth of the BRICS alliance, has pushed the Fed to further tighten its monetary policies.
“The bigger picture is we are making progress on labor market, inflation, and very focused on getting policy sufficiently restrictive,” Powell noted in the press release.
Having hiked the federal funds rates month after month in 2022, Powell highlighted that the effects are beginning to be seen with a stable dollar. Moreover, Powell is convinced that the United States banking system is sound and resilient enough after most institutions faced significant flight to economic safety to what was previously perceived as risky including Bitcoin (BTC).
Economic Outlook and Market Impact
With the Federal Reserve committee keen on lowering the inflation to 2 percent in the long term, the stock market rallied in the past 24 hours led by Dow Jones Industrial Average Index, and the S&P 500 Index. According to our latest stock market data, the S&P 500 traded around 4237.87 on Thursday, up approximately 10 percent YTD. On the other hand, the Dow traded around 33,274.59, up approximately 0.67 percent in the past 24 hours.
The latest US economic outlook further fueled the ongoing Bitcoin recovery from the 2022 crypto bear market. As of reporting time, Bitcoin (BTC) traded around $35,240, up more than 112 percent since the calendar flipped in January. Moreover, more institutional investors have shown increased demand for digital assets through the spot Bitcoin ETF frenzy that was triggered by BlackRock Inc (NYSE: BLK).
As for the United States Growth Domestic Product (GDP), the Treasury Department earlier this week highlighted that the pace of growth will likely fall to 0.7 percent during the fourth quarter and by 1 percent for the entire year. Nonetheless, the Fed data shows a projected GDP growth of about 1.5 percent in 2024, despite the global uncertainties.
“There are risks in both directions,” Whitney Watson, co-CIO of fixed income and liquidity solutions at Goldman Sachs Asset Management, said. “The rise in inflation expectations, owing to higher gas prices, combined with strong economic activity, preserves the prospect of another rate hike. Conversely, a more pronounced economic slowdown caused by the growing impact of higher interest rates might accelerate the timeline for transitioning to rate cuts.”