Powell talks after Fed raises rates by half a point: live updates




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federal funds target rate

federal funds

target rate

federal funds

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The Federal Reserve raised interest rates by half a percentage point and announced plans to reduce its massive bond holdings with the aim of reducing inflation to the sharpest rate in four decades.

Wednesday’s move marked the Fed’s biggest interest rate hike since 2000, and at the same time shrinking its nearly $9 trillion balance sheet, the Fed is increasingly withdrawing support from the economy. Together, the policies are likely to ricochet through the markets and economy as borrowing money becomes more expensive.

The quick withdrawal of monetary help is a sign that the central bank is getting serious about cooling the economy and the job market as bullish inflation persists and as officials panic it could become more permanent. For the past several months, prices have been climbing at the fastest rate in 40 years.

Policymakers spent much of 2021 hoping that inflation would subside on its own as supply shortages eased and as the economy recovered from early-pandemic disruptions. But normalcy has not yet returned, and inflation has only intensified. Now, the latest pandemic-related lockdowns in China and the war in Ukraine are pushing up the prices of goods, food and fuel. At the same time, workers are in short supply and wages are rising rapidly in the United States, feeding in higher prices for services as consumer demand remains strong.

The Federal Open Market Committee statement for May said the “lockdown in China is likely to lead to increased supply chain disruptions,” and the invasion of Ukraine “and related events are creating additional pressure on inflation and weighing on economic activity.” likely to fall.” “The Committee is extremely mindful of inflation risks.”

The Fed reiterated that “inflation remains high, reflecting supply and demand imbalances related to the pandemic, higher energy prices and broader price pressures.”

Fed officials have decided they no longer have the luxury of waiting for inflation to subside on their own, and expect to continue raising rates at their meetings throughout the year, with major increases in June and July. Some officials have also indicated that a move of 0.75 percentage points may be possible, although there is no consensus around such a plan.

While the Fed acknowledged that inflation could remain bullish as China’s supply disruptions and the war in Ukraine added to price pressures, some analysts doubt an even bigger step would be taken.

“What they’re trying to do is tell the market — inflation could be higher in the near term,” Gennady Goldberg, rate strategist at TD Securities, said of the Fed’s references to Ukraine and China. “It doesn’t suggest they should raise 75 basis points, because that’s not the type of inflation that the Fed can control.”

It is a difficult task to decide how soon to withdraw policy support. Central bankers are hoping to move decisively enough to arrest the pop in prices, without stifling growth so aggressively that they plunge the economy into a painful recession. Yet engineering a so-called soft landing is likely to be a challenge.

Jerome H. Powell, Fed Chairman, will answer reporter questions at 2:30 p.m.

The Fed plans to reduce its balance sheet starting in June by allowing its balance sheet to mature without reinvestment. It said Wednesday that it would eventually phase out up to $60 billion in Treasury debt each month, along with $35 billion in mortgage-backed debt. That plan will be fully phased out by September.

The Fed’s plan to reduce its holdings is likely to take steam off financial markets and could help cool the housing market as it lowers long-term borrowing costs while reinforcing the impact of central bank interest rate hikes. enhances. The Fed’s anticipated moves have already started raising mortgage rates.

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