The Federal Reserve raised interest rates by 0.25%, as expected, with Powell emphasizing determination to combat inflation.

The Federal Reserve announced its decision in the early morning of 11/3 in Taiwan. As the market expected, the interest rate was raised by three basis points, setting the target range for the federal funds rate at 3.75%-4%, the highest level since January 2008. Following the meeting, Federal Reserve Chairman Powell mentioned the need for determination and patience in combating inflation. In response, the stock market plummeted, with the S&P 500 index falling by 2.5% and the Nasdaq index dropping by 3.36%.

Fed Expresses Determination to Combat Inflation

The Federal Reserve in the United States raised interest rates for the fourth consecutive time by 0.25%, bringing the target range to 3.75%-4%, in line with market expectations. However, Fed Chairman Powell, in a statement after the meeting, reiterated that the continued increase in the target range is appropriate and that implementing monetary policy over time will help restore the inflation rate to the 2% level. Powell mentioned that although members will discuss slowing the pace of tightening at the next one or two meetings, new data since the last meeting suggests that the Fed may need more time, and ultimately, the interest rate level will be higher than previously expected. He also emphasized that reducing inflation requires more determination and patience.

Will the Economy Experience a Soft Landing?

When asked about the possibility of an economic soft landing, Powell also expressed some pessimism about the future. He pointed out that as interest rates rise, policies need to be stricter, reducing the chances of a soft landing. Currently, the U.S. 10-year bond yield has been inverted with the 2-year bond yield for five consecutive months, indicating market concerns about the future outlook.

Market expectations for the next rate hike in December show a 61.5% probability of a 0.25% increase and a 38.5% probability of a 0.50% increase. It is widely expected that the benchmark interest rate will exceed 5% by mid-2023 with a probability exceeding 60%.