The Federal Reserve increased interest rates by a quarter of a percentage point but also hinted that it may pause further increases after the recent collapse of two U.S. banks. Fed Chair Jerome Powell reassured investors that the banking system is sound and resilient, despite the failure of Silicon Valley Bank, and added that the recent takeover of Credit Suisse appeared to have been a positive outcome so far. The latest policy statement no longer states that ongoing rate increases will likely be appropriate, reflecting a shift after the recent bank failures. Policymakers are seeking to restore confidence in the banking system, with multiple regional banks likely still at risk. Treasury Secretary Janet Yellen also stated that there is no consideration of insuring all uninsured bank deposits, which arguably did more damage than the rate hike.
Main boards plunged by approximately 1.6% after a 25-basis point hike, citing tighter lending standards, and dismissed expectations of any rate cuts this year. GameStop managed to beat the odds after beating profit expectations and rising 35%.
Gold prices rallied and returned to the high $1900s following the Fed's chairman's hint at a pause on rates that sent the dollar lower. Gold is expected to become a safe-haven asset again due to the possibility of tighter credit conditions for longer.
Oil prices recover on a lower dollar and OPEC+ maintaining output but are weighed down by the EIA's report of a 1.117 million barrel increase in crude inventories. A tighter credit environment is expected to drive down business activity and possibly weigh on the oil market in the longer term.
The US dollar fell after the Federal Reserve raised its key rate by 0.25% and suggested only one more rate hike this year before pausing. The Fed also made provisions to support the financial system due to recent bank failures that prompted expected terminal interest rate to only 5.25%. The pound rose due to higher-than-expected UK inflation data.