There has been a significant rally in gold, bitcoin, and the US stock market as Federal Reserve Chairman Jerome Powell ruled out a 75 basis point rate hike in upcoming meetings, contrary to market expectations for June. Powell commented on his intentions during a press conference following the Fed's decision to raise rates by 50 basis points, the biggest rate hike since 2000.
Powell told the media that the committee was not considering a 75 basis point rate hike. Additional increases of 50 basis points are to be considered at the next two meetings. And they will make decisions from meeting to meeting as data becomes available, gradually reducing inflation to a target of 2%.
Despite the U.S. economy contracting 1.4% in the first quarter, Powell said the Fed has a good chance of hitting the target softly because the committee is aggressively tightening its monetary policy this year. Before returning to just 25 basis points higher, the head of the regulator would like to see real progress on the inflation front.
"We want to see evidence of inflation moving lower. We need to really see that inflation is under control and starting to come down. One month's data is not enough," said Powell.
Some elements will remain out of the Fed's control, such as increasing pressure on inflation due to the tense geopolitical environment in Ukraine.
Powell also added that there is no indication that the US economy is vulnerable to a recession or cannot sustain higher rates. However, given global events and tightening monetary policy, he acknowledged that the US economy may recover at a slower pace.
Powell said that he sees no contradiction between maximum employment and price stability.
Before the meeting, market participants were almost 100% likely to expect a 75 basis point rate hike at the June meeting, according to the CME FedWatch Tool. After the announcement, those expectations dropped to 75%.
In response to Powell's somewhat more accommodating comments, gold, bitcoin, and the US stock market were all up as markets repriced expectations for future rate hikes.
