US Federal Reserve (Fed) Hikes 75 Basis Points in Interest Rates

The Federal Open Market Committee (FOMC) has announced its highly anticipated interest rate decision. Through this decision, the FOMC increased the policy rate by 75 basis points, in line with the expectations, to the range of 2.25-2.50 per cent. The decision was taken unanimously.

"War Causes Humanitarian and Economic Challenges"

The decision published by the FOMC emphasized that Russia's war against Ukraine caused humanitarian and economic challenges. "The Committee is extremely cautious about inflation risks," the statement said, pointing out that the war created additional upward pressure on inflation.

The statement indicated that in order to reach the maximum employment and 2 per cent inflation target in the long term, the federal funding rate was reduced to 2.25-2.50 per cent and envisaged that maintaining interest rate hikes would be appropriate. The statement also mentioned that the bank will keep shrinking its balance sheet as planned and is determined to reduce inflation to the 2 per cent target.

"We Will Not Hesitate To Make a Bigger Move"

Fed Chair Powell reiterated his determination to reduce inflation at the press conference following the interest rate decision and said: "While another unusually large increase could be appropriate at our next meeting, that’s a decision that will depend on the data between now and then."

Emphasizing that they will not hesitate to make a bigger move, Powell noted that they are ready to act in a more aggressive manner in case inflation keeps being disappointing.

Fluctuation in the Exchange Rate Following the Decision

After the Fed's decision in line with expectations, there was no significant change in the USD/TRY parity in the first instance. Afterwards, USD fell from 17.90 to 17.88 following Powell's statements.

EUR/USD parity increased from 1.012 to 1.020 after the statements. EUR/TRY increased from 18.15 to 18.27.

On the other hand, the ounce price of gold, which was traded at $1.725 before the decision, exceeded $1.738 as of 22.30 TSI.