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Fed chair Jerome Powell leaves after a news conference in Washington, DC.
The Fed's last rate hike of 2023?
On Wednesday, the US Federal Reserve will announce whether it'll further raise interest rates to tamp down inflation, which has eased in recent months yet remained at 5% in March, well above the 2% level that economists like. It's likely that the Fed will go for another 0.25 percentage point hike — taking interest rates to between 5% and 5.25%, the highest level in 16 years.
But that's not what economists and investors will most pay attention to.
They will surely obsess over every word that Fed Chair Jay Powell says in his speech after the rate decision is announced — looking for any signal that it’ll be the last hike of 2023. Yet, don't be surprised if Powell keeps his cards close to his chest amid stubbornly high inflation, fears of a looming US recession, and financial sector jitters after the collapse of First Republic Bank.
"Our base case is that the Fed will pause there and hold that rate through to at least the end of the year," says Eurasia Group analyst Robert Kahn. "But it'll be interesting to see how the Fed handles it. They're not going to want to give any kind of assurances."
A graph comparing the US Federal Funds Effective Interest Rate with the year-on-year percentage change in inflation.
The Graphic Truth: US interest rates vs. inflation
All eyes are on the US Federal Reserve, as it is set to announce Wednesday whether it’ll raise interest rates amid the recent banking turbulence.
The Fed’s decision will hinge on what central bankers think is a bigger priority: fighting inflation or stabilizing the financial sector following the recent collapses of Silicon Valley Bank and Signature Bank.
While it could stay the course in its inflation fight with another rate hike, the Fed is coming under growing pressure to ease investors’ anxieties by leaving interest rates be. But doing that risks giving in — temporarily, at least — to lasting inflation. The longer the Fed waits to control rising prices, the worse chance it has to reach its 2-3% inflation target without triggering a recession.
Also, high-interest rates are partly to blame for the recent financial turmoil on both sides of the Atlantic. Right-leaning critics argue that near-zero rates for too long made lending too cheap. Meanwhile, some on the left say that raising rates too quickly made borrowing too expensive, hurting the balance sheets of banks like SVB.
What do you think the Fed’s next move should be? Let us know here.
A man counts Lebanese pound banknotes at an exchange shop in Beirut, Lebanon.
Hard Numbers: Lebanon devalues lira even more, Adani calls off share sale, Fed slows hiking pace, radioactive capsule found in Oz, Philippines opens more bases to US
90: Lebanon has devalued its currency by — wait for it — 90% as a condition for securing an IMF bailout for what remains of the country's battered economy. Although the central bank says this is a first step toward unifying the multiple exchange rates the Lebanese people use for different transactions, the new official value of the lira is still far above the black market rate that most people actually pay.
2.5 billion: India's Adani Group abandoned a $2.5 billion share sale, citing continuing volatility in the wake of a US short-seller's report that alleged stock manipulation and tax fraud. The allegations wiped billions in value from the company, making founder Gautam Adani no longer Asia's richest man.
25: The US Federal Reserve raised interest rates by 25 basis points to 4.75%, the smallest hike since it started hiking rates to fight inflation in March 2022. The Fed is still trying to thread the needle: cooling the economy to bring down inflation without triggering a recession that brings down everything else.
0.24: Be careful when you're transporting hazardous materials, mate. Australian authorities finally found that 0.24-inch diameter radioactive capsule that went missing last month after falling off a truck. Mining giant Rio Tinto apologized for losing the device, which contained a tiny amount of Cesium-137 that can cause radiation sickness.
4: The Philippines granted the US military access to four additional bases as both sides look to ward off China’s aggressive moves on Taiwan and the disputed South China Sea. This is bold move for Manila under President Ferdinand Marcos Jr., who has been trying to get along with Beijing without being as pro-China as his predecessor, Rodrigo Duterte, who wanted to kick out visiting US forces and tear up mutual defense pacts to please Xi Jinping.
Crypto fans ignore its ups and downs
In the past few weeks, the value of cryptocurrencies has been slashed by half over fear, uncertainty, and doubt (aka FUD) of US interest rate hikes and new regulation.
That means NYC Mayor Eric Adams, NFL quarterback Aaron Rodgers and basketball star Klay Thompson all face pay cuts because they get their salaries in crypto.
Yet, the crypto bros out there have not lost faith.
El Salvador’s crypto-loving President Nayib Bukele is still going strong, ignoring calls by the IMF to stop using bitcoin as legal tender.
What's the big deal about bitcoin anyway?
Critics say it's a Ponzi scheme for criminals. The online black market does take bitcoin, which is also the go-to payment scheme in rug-pull scams.
But crypto fans insist that the tech is anonymous, secure, and unhackable. Not to mention cutting out the middleman: untrustworthy banks.
In fact, crypto has already gone so mainstream that Goldman Sachs predicts it'll compete with gold, and JP says that blockchain will be the backbone of Web 3.0 — a new, more decentralized internet.
The flip side: it could also go to zero.
Watch the GZERO World episode: Does China's rise have to mean America's decline?