The Week in Business: The Fed Goes Big

What’s Up? (June 12-18)

Largest Rate Increase Since 1994

In its most striking move yet to rein in inflation, the Federal Reserve raised its benchmark rate three-quarters of a percentage point Wednesday, the central bank’s biggest increase since 1994. While taking questions from reporters after the announcement, Jerome H. Powell, the Fed chair, said officials were “not trying to induce a recession right now.” Nonetheless, that’s what many fear: If the Fed’s efforts to tame rising prices and tamp down demand go too far, the bank could touch off a serious economic slowdown, forcing businesses to close and sending unemployment numbers back up. And the Fed has shown no signs of changing its path. The increase on Wednesday could be followed by a similarly large one next month. Mr. Powell is likely to face tough questions about this and other Fed actions when he appears before lawmakers in the House and Senate this week.

Rocky Week for the Markets

The SP 500 was up slightly on Friday, but that was small comfort to investors as the SP had its worst weekly performance since March 2020. Stocks fell into a bear market on Monday, as investors anxiously anticipated the Fed’s rate increases and dragged the SP more than 20 percent below its most recent peak in January. When the Fed finally did announce its decision, investors appeared largely unsurprised, and the markets stayed fairly steady that day. But stocks fell sharply on Thursday and remain on shaky ground. And it was perhaps an even worse week for cryptocurrency markets, as prices continued to collapse and crypto companies cut staff. The price of Bitcoin fell below $20,000 for the first time since late 2020. Coinbase said it was laying off 18 percent of its employees on the heels of cuts at other crypto companies, including Gemini and BlockFi. Celsius, an experimental crypto bank, announced it was halting withdrawals “due to extreme market conditions.”

Article source: https://www.nytimes.com/2022/06/19/business/the-week-in-business-federal-reserve-interest-rates-markets.html