The Fed rate decision will be announced on Wednesday, March 22. The Fed statement will affect not only the crypto industry, but also dollar and gold prices. The US Federal Reserve, which increased by 25 basis points in February, is expected to increase by 25 basis points for its March rate decision. So what happens to the dollar if the Fed raises interest rates?
When is the Fed Rate Decision Announcement?
The highly anticipated Fed March rate decision announcement will be made on Wednesday, March 22. The announcement, to be made at 21:00, was expected to be made on March 15, but the date was postponed.
In the decision statement made by the Fed after the interest rate decision in February, it was stated that the latest indicators point to moderate growth in expenditure and production. However, job gains have been strong in recent months and the unemployment rate has remained low. It was noted that although inflation decreased slightly, it still remained at a high level.
The Fed resolution text also noted that Russia’s war against Ukraine has caused enormous human and economic hardships. In addition, it was stated that the ongoing war contributed to global uncertainty. The Fed also stated that the committee will remain extremely vigilant against inflation risks.
What Happens To The Dollar And Gold If The Fed Increases Rates?
When the Fed raises interest rates, the dollar appreciates against other currencies because the aggregate demand for the dollar will increase (if the interest rates of other currencies do not change). The larger and higher the rate of increase in interest rates, the greater the effects. Financial markets react quickly to interest rate hikes. While the dollar rises in foreign exchange markets, stock and bond prices fall. In the real sector, on the other hand, the effect of the interest rate hike is felt with a lag.
As banks whose borrowing costs increase will increase loan, credit card and mortgage interests, individual and corporate borrowing and expenditures will decrease, risk-free investment will become attractive as the risk-free rate of return will increase, and economic activity and investments will decrease. As the value of the US dollar rises against other currencies, imports increase, exports decrease and the US foreign trade deficit widens.
If the Fed raises interest rates, gold prices will not always stay the same. Since gold is a much longer-term investment tool compared to other investment instruments, its behavior against interest increases and reductions may change depending on the conjuncture, and therefore it is complex. Since gold is not an investment instrument that provides fixed returns like interest and the like, when the Fed raises interest rates, it is normal for gold prices to react by declining in the short term, but this is not the case in all circumstances.
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