he Federal Reserve announced its most aggressive interest rate hike in more than two decades and said it would shrink its balance sheet in response to the excruciating inflation afflicting the economy.
Following a two-day meeting, the Federal Open Market Committee announced Wednesday that it would increase its interest rate target by half of a percentage point. The central bank typically raises rates by just a quarter of a percentage point, so the move signals that the Fed is highly concerned with the soaring prices.
During a press conference after the announcement, Fed Chairman Jerome Powell said the Fed has the “tools we need and the resolve it will take” to bring down inflation.
HOUSING AFFORDABILITY NEAR WORST ON RECORD AS FED BATTLES INFLATION
“The economy and the country have been through a lot over the past two years and have proved resilient,” Powell said. “It is essential that we bring inflation down if we are going to have a sustained period of strong labor market conditions that benefit all.”
The aggressive move by the Fed this week was expected, with investors already pricing in the half-point hike. Powell has been messaging that the move was coming over the past several weeks and has taken an increasingly hawkish tone when speaking about monetary policy.
Also Wednesday, the Fed announced it would begin shrinking its balance sheet by $60 billion in Treasuries and $35 billion in mortgage-backed securities each month. The central bank had previously been buying $120 billion of Treasury and mortgages securities each month in an effort to pump liquidity into the market and shore up the economy as the pandemic raged.
This likely isn’t the only meeting that the Fed will move more forcefully than usual with its monetary tools.
Investors are predicting more of the aggressive half-point rate hikes occurring at the Fed’s June and July meetings, according to CME Group’s FedWatch tool, which calculates the probability using Fed fund futures contract prices.
The Fed has two mandates from Congress: price stability and maximum employment. While the job market is booming and the unemployment rate is flirting with ultra-low prepandemic levels, the Fed now must depress spending in order to bring down prices.
There is fear among many economists that a recession is on the horizon because the Fed has waited so long to begin tightening its monetary policy and is now being forced to move much more rapidly in raising the federal funds rate.
https://www.washingtonexaminer.com/...est-rate-hike-in-attempt-to-counter-inflation
Following a two-day meeting, the Federal Open Market Committee announced Wednesday that it would increase its interest rate target by half of a percentage point. The central bank typically raises rates by just a quarter of a percentage point, so the move signals that the Fed is highly concerned with the soaring prices.
During a press conference after the announcement, Fed Chairman Jerome Powell said the Fed has the “tools we need and the resolve it will take” to bring down inflation.
HOUSING AFFORDABILITY NEAR WORST ON RECORD AS FED BATTLES INFLATION
“The economy and the country have been through a lot over the past two years and have proved resilient,” Powell said. “It is essential that we bring inflation down if we are going to have a sustained period of strong labor market conditions that benefit all.”
The aggressive move by the Fed this week was expected, with investors already pricing in the half-point hike. Powell has been messaging that the move was coming over the past several weeks and has taken an increasingly hawkish tone when speaking about monetary policy.
Also Wednesday, the Fed announced it would begin shrinking its balance sheet by $60 billion in Treasuries and $35 billion in mortgage-backed securities each month. The central bank had previously been buying $120 billion of Treasury and mortgages securities each month in an effort to pump liquidity into the market and shore up the economy as the pandemic raged.
This likely isn’t the only meeting that the Fed will move more forcefully than usual with its monetary tools.
Investors are predicting more of the aggressive half-point rate hikes occurring at the Fed’s June and July meetings, according to CME Group’s FedWatch tool, which calculates the probability using Fed fund futures contract prices.
The Fed has two mandates from Congress: price stability and maximum employment. While the job market is booming and the unemployment rate is flirting with ultra-low prepandemic levels, the Fed now must depress spending in order to bring down prices.
There is fear among many economists that a recession is on the horizon because the Fed has waited so long to begin tightening its monetary policy and is now being forced to move much more rapidly in raising the federal funds rate.
https://www.washingtonexaminer.com/...est-rate-hike-in-attempt-to-counter-inflation
