The Federal Reserve, popularly known as the Fed, convened on Wednesday (23) to discuss upcoming decisions regarding its monetary policies.
Indecisive and mentioning the possibility of further interest rate hikes, the Fed ended up stressing the markets.
While the S&P 500, an index comprising the 500 largest US companies, is experiencing a 0.9% decline on Wednesday, gold dropped by 1.4% during the same period.
Bitcoin, on the other hand, was the most affected, suffering losses of 4% as it dipped to $26,000.
Other cryptocurrencies followed the downward trend, including the prominent Ethereum.
The dollar's inflation has already shown significant improvement since the beginning of the US central bank's tightening monetary policy.
However, despite declining from 9.1% to 4.9%, there is still a long way to go to reach the Fed's target of 2% per year.
When asked whether the Fed will continue raising interest rates or if the increase is coming to an end, Jerome Powell startled the markets with his response.
"If we need to raise interest rates, we will do so," Powell replied to an Associated Press journalist.
"We know that this can have an effect on the macroeconomy, demand, the labor market, inflation, and we will be watching to see what those effects are."
"So, we will be watching all of these things, and of course, we will eventually get to a policy that is tight enough to reduce inflation to 2%."
In summary, the increase in interest rates aims to make it more difficult to obtain credit, resulting in less money circulating in the economy.
It is a measure to cool down the economy after years of excessive economic stimulus provided by the government.
As a consequence, such a tightening of monetary policy weakens the economy, leading to mass layoffs, bank failures, and even the risk of a recession, all of which are reflected in the speculative market.
However, Powell and his team seem to have a single goal: bringing inflation back to 2% per year.
The next Fed meeting is scheduled for June 14th.
On the other hand, Jerome Powell also highlighted that recent inflation data may cause the Fed to halt interest rate hikes.
However, it is still too early to anticipate a reduction, even considering its consequences.
"The crosscurrents of inflation and the labor market data have come in stronger than anticipated, and indeed, before the recent events, we were clearly on a path to continue with the ongoing rate increases," Powell commented.
"In fact, just a few weeks ago, it looked like we would need to raise rates more over the course of the year than we had expected in December [last year]."
The next Fed meeting, where the US central bank may adjust interest rates again, is scheduled for June 14th.
Nevertheless, we can expect rates to remain high throughout 2023, even without further increases.
Therefore, Bitcoin, gold, and stocks are likely to face challenges.
