1. Home
  2. Markets Updates
  3. What Does a 25 Bps Fed Rate Hike Mean for the Markets?

What Does a 25 Bps Fed Rate Hike Mean for the Markets?

2 February 2023

Share the article:

Maxim Bohdan

The Federal Reserve, on Wednesday, February 1st, made a crucial monetary policy decision by raising its key interest rate by a quarter of a percent. This hike has resulted in the key rate being 4.75 percent, the highest level since October 2007.

Nevertheless, the rate of growth has slowed down considerably. This move by the Fed reflects the declining inflation rate in the United States due to a slowing economy, and signals that a turning point may be approaching that could drive the stock market to new highs.

This raises an important question — what does this recent development mean for the financial markets?

US inflation target reaffirmed by Fed

The US Federal Reserve decided to raise its interest rate as inflation slowed. Fed Chairman Jerome Powell stated that the regulator would continue to raise rates in quarter percentage point increments until they reach a point where they can start lowering them, which is expected to be later this year.

The ultimate goal is to reach the documented US inflation rate of 2%, but currently stands closer to 6,5%. According to the Fed Chairmen, these staggered 25 basis point rate hikes can continue until the inflation target begins to approach the target.

How does this affect stocks, the Dollar, and Gold?

The market reaction to the Fed's decision to raise the key rate by 0.25 percent was predictable. Before the announcement, investors expected a positive impact on U.S. stocks and gold, and a negative impact on the dollar if Fed signals indicated a continued key rate hike during 2023. That is exactly what happened. By the way, the Fed cut the rate hike to 25 basis points but indicated that such hikes would continue, and it was too early to discuss ending them.

As a result, in the immediate aftermath of Powell's speech, the US Stock ($NAS100, $DOW30, $SPX500) and gold ($XAU/USD) gained several points, recouping losses from recent days. Meanwhile, the US Dollar index began to decline, reflecting the disappointment in the regulator's announcement. These mixed reactions show that investors are still trying to assess the implications of the Fed's monetary policy decision and its impact on the markets.

The expectation of lower borrowing costs is one reason the stock and bond markets have rallied in recent weeks. The S&P 500 index rose 1% on Wednesday while the Nasdaq jumped 2%.

The next step is behind the February inflation figures. This will decide the fate of the Fed's further rate.

Summary

  • The Fed raised its key rate to 4.75%, the highest since 2007.
  • Future hikes to reach the US inflation target of 2%.
  • Market reaction to hikes mixed, with the US Stock and gold gaining and the US Dollar declining. 
  • Inflation figures to decide the future of Fed's rate, markets uncertain.
IMPORTANT NOTICE: Any news, opinions, research, analyses, prices or other information contained in this article are provided as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and therefore, it is not subject to any prohibition on dealing ahead of dissemination. Past performance is not an indication of possible future performance. Any action you take upon the information in this article is strictly at your own risk, and we will not be liable for any losses and damages in connection with the use of this article.
RISK WARNING: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. A high percentage of retail client investors lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Related articles

NAGA Weekly Recap June 6 - 20, 2025
20 June 2025
Geopolitical heat, mixed data, and market hesitation — dive into this week’s recap as traders navigate commodity spikes, steady stocks, and what’s next from the Fed.

Read more

Gladys Eguia

Brent on the Boil: Oil Rallies as Geopolitical Heat Fuels Bullish Breakout
19 June 2025
Oil markets are heating up as Brent crude breaks out above major moving averages. Discover the key levels, risks, and drivers behind the latest price rally.

Read more

NAGA Weekly Recap June 9 - 13, 2025
13 June 2025
Catch up on this week’s market moves: strong U.S. jobs data lifted sentiment, but inflation risks and stalled trade talks kept investors cautious. Tech led gains, oil climbed, and the dollar slipped. Read the full financial recap for June 9–13, 2025.

Read more

Gladys Eguia