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The Federal Reserve Decides Another Rate Hike During a Financial Crisis. What does this Raise Mean for the People?

The Federal Reserve’s monetary policy meetings have been dominated by discussions of inflation for the past two years. However, recent events have brought financial instability to the forefront of conversations. Following the collapses of Silicon Valley Bank and Signature Bank, the Fed is left with the decision to continue raising interest rates or pause until the storm passes. Experts predict that the Fed will raise interest rates by a quarter percentage point for the ninth time to the 4.75%-5% range.

Fed Chairman Jerome Powell is the first to provide answers during a press conference following each monetary policy meeting, allowing him to deliver his ideas with exceptional clarity. The market will closely monitor any references to the banking failures in the Fed’s statement and Powell’s remarks to reporters.

Before Silicon Valley Bank’s sudden death due to a run on deposits, Powell was debating whether to increase interest rates by a quarter or half a percentage point. Inflation, which remains well above the 2% target, seems entrenched, having given up some ground in the last seven months. Moreover, core inflation is still relatively high.

During its most recent meeting in February, the Fed already slowed the rate hike pace, approving a 0.25% increase after four straight increases of 0.75% and a subsequent increase of 0.50. Investors anticipated a similar rise in March since the central bank has already indicated that more increases would be necessary. But, Powell spoke before Congress and cautioned that rate rises might speed up again in the wake of January’s outstanding employment data and indications that demand was not slowing down.

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Official interest rates have increased from close to 0% to the 4.5-4.75% range in less than a year, the sharpest increase in the price of money since the early 1980s. The value of the long-term Treasury bonds that financial institutions hold has decreased due to the rate increase, which in turn contributed to Silicon Valley Bank’s crisis along with other mistakes and faults made by the bank. Unrealized losses held by other institutions are hundreds of billions of dollars.

Several experts have made predictions concerning the probability of a slowdown in rate rises in response to Silicon Valley Bank’s collapse and the ensuing financial storm. Goldman Sachs considered a delay “in light of the recent tensions in the banking system.” However, most analysts anticipate a hike of 0.25%, following the same script as the European Central Bank and the Bank of England: rate hikes to combat inflation and liquidity measures to relieve financial stresses.

While the decision of the Federal Reserve to raise rates amidst the current financial storm may seem risky, it is essential to note that it is not the only approach available to them. The Fed could pause rate hikes until the financial situation stabilizes or implement alternative monetary policy tools, such as quantitative easing, to address the current economic challenges.

In conclusion, the Federal Reserve’s decision to raise interest rates amidst the current financial storm is a delicate balancing act that demands careful consideration of the potential risks and benefits. While rate hikes may be necessary to combat inflation, they can also exacerbate financial instability, particularly in the current economic climate. As such, it is important for the Fed to carefully consider alternative approaches, such as pausing rate hikes or implementing quantitative easing to address the current economic challenges.

FAQs

 
Q1. What does it mean when the Federal Reserve raises rates?

When the Federal Reserve raises rates, it makes all kinds of lending more expensive. 

Q2. How does Federal Reserve affect interest rates?

The Federal Reserve uses the fed funds rate to influence the U.S. economy and directly affects interest rates such as credit cards, personal loans, and mortgages.

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Ashish Verma

Ashish Verma is the founder and CTO of Secvolt, with close to 10 years of experience in the IT industry. He has been the technical backbone of the company and has worked tirelessly to make the technical infrastructure robust. He is a passionate entrepreneur who generates solutions that have the potential to bring change.

In order to ease the client’s interaction with Secvolt, he has strived to develop the business’s technological foundation and establish a user-friendly platform. Ashish has also contributed substantially to smoothening the company’s administration and ensuring that there are no lacunae in the broad structure of the organization. 

Early Years

Coming from a middle-class family, he was aware of the problems that people faced while using technology. He sought to create something that was simple to use yet had a powerful effect. As he studied computer science, he became eager to offer a solution to real issues. He began his professional career at Amdocs, where he gained expertise in client management while catering to more than 20 clients. Later, he moved to Citicorp, where he had exposure to the investment industry. His time at Amdocs and Citi enabled him to produce high-standard, efficient, and scalable technical infrastructure.

He left corporate jobs for his startup because he was passionate about working on the concept of a smart city platform. He expanded the concept internationally and even collaborated with Global Dignity-Kuwait. Things didn’t work out for him the first time. He states, “My failures didn’t stop me from experimenting and trying new things.” He rose from the ashes like a phoenix and founded FewerClicks, an End to End IT solution company.

He worked on the creation of Solster Finance, a decentralized financial platform based on the Solana blockchain. He created this platform single-handedly which has helped the team raise a $1M investment and a revenue of more than $5M within 6 months of launching. 

He has previously worked on many blockchain technologies and cryptocurrency ventures, which include Decentralized Finance Applications (Defi), Decentralized Applications (Dapps), File Contracts (SIA, record-keeper), Smart Contracts (rust, solidity), and NFT Development. His experience and effective communication have helped many team members understand Secvolt effectively and the underlying technology it is powered by.

He possesses the ideal combination of strategic thinking and excellent business insight. He is responsible for formulating technical aspects of the company’s strategy to guarantee alignment with business objectives. With his drive to experiment with new technologies, he has helped Secvolt achieve a competitive edge. Being in charge, Ashish never holds back in encouraging the different departments to make profitable use of technology, helping to grow as an unstoppable team at Secvolt!

Hanif Shaikh

Hanif Shaikh is the founder and CMO of Secvolt, with over 8 years of experience in the industry. He plays a crucial role when it comes to the growth of Secvolt. Since the beginning, he has acted as a mentor for each and every employee of the company, and he makes an effort to be accessible to his staff anytime they need him. 

Hanif first entered the Blockchain and Crypto world in 2016, and nothing has stopped him since. He views blockchain as a transparent platform that provides authority and accountability back to the people. He consistently believes that “overcommunication is better than miscommunication.” He has lived by this motto with his staff, clients, and networks.

Early Years

Hailing from Gujrat, a state in India, he is following his dream to contribute to making this world a better place. In the process, he has struggled, made some mistakes, and learned lessons from those mistakes to achieve success in life. His entrepreneurial attitude dates back to his childhood when he learned from his father’s business and aspired to have it all. He came from a humble background and had ambitions to succeed in life.

He has developed two successful businesses from scratch, and in the process, he has inspired young people to start their own businesses. He was an integral part of the Quora Mumbai Meetups and helped it become a great success in a short period of time. Later, he began organizing meetups to raise awareness about blockchain, cryptocurrencies, and their applications. He also shared his knowledge of ICOs, highlighted reputable ICOs, and established a small cryptocurrency community on WhatsApp groups.

He chose to go on a Blockchain Tour in India in 2019 and met some fascinating people. Throughout his journey, he has been able to build an extensive and robust network that has aided Secvolt’s growth. Because of his expertise and understanding of the Crypto Industry, he has been featured on several news channels and has advised the youth on the subject.

He is in charge of the company’s marketing operations and is responsible for developing its marketing strategy and vision. He oversees a group of passionate marketing professionals and plans promotional strategies with the goal of making  Secvolt a global brand. 

He is a perfect blend of a practical attitude and innovative business acumen. He believes in the ability of individuals to perform exceptionally well when given an environment to experiment and explore their passions; a culture that he has built at Secvolt.

Divakar Choudhary

Divakar Choudhary is the founder and CEO of Secvolt who has been trading for more than six years now. He started the business in 2018 with the conviction that if anybody could dominate the market, it was him. He poured all of himself into the business and turned Secvolt into a market-beating machine.

Divakar developed the fundamental quant models that perform risk management and capture alpha using his skills from the previous organization and his time spent in the market. In order to make the system effective, he backtested risk mitigation algorithms and worked on them for more than 4 years to produce results.

Early Years

He began his crypto journey in 2013 after getting his first gaming Laptop and melded in with the Blockchain community like sunbeams on the ocean. He created many YouTube channels at the age of 15 and businesses by the time he was 17. Technology has always piqued Divakar’s interest. He endeavored and succeeded at freelancing in his effort to achieve financial independence. However, he soon realized that freelancing would always keep him in the rat race, and the only way out would be to build a machine yielding generational wealth.

Soon, he started trading using his own capital but suffered a loss in the market. He says, “95% of people lose money & the rest 5% make money from the loss of those 95%.” He then began working on an effective technique to be included in this 5% after losing part of his own assets during the early stages of trading. He began evaluating quant strategies using statistical models.

With his methodology, he once produced a 20% ROI in a single month. With the zeal of creating something exceptional, he borrowed money from friends and family and generated decent returns for them using primitive quant models. Month after month, the system’s efficiency and the competence of the man behind it allowed for excellent market returns.

In the beginning, Divakar worked on his laptop for over 18 hours. It took every ounce of his energy as he executed about 530+ deals daily for 4 years to create this company from the ground up. In 2021, he increased his volume by 827%, trading a total of $52 million and hitting a single account.

In his words-

“What does becoming “THAT” GUY mean to you? Who did you need when you were young? Be that person!”

He is a perfect example of someone who followed his passion and made a fortune from it! He dreamt of creating generational wealth as a youngster, envisioned it as an adult, and is now making it a reality with Secvolt!