Additional 50-basis-point increases are ‘on the table’ at the Fed’s next meetings, Powell says
The Federal Reserve raised interest rates by the most since 2000 on May 4 as part of efforts to fight 40-year-high inflation.
Officials serving on the Federal Open Market Committee (FOMC) agreed to increase the benchmark fed funds rate by 50 basis points, bringing it to a target range of 0.75 percent to 1 percent. The central bank’s decision was in line with market expectations.
“There is a broad sense on the committee that additional 50 basis points increases should be on the table at the next couple of meetings,” Fed Chairman Jerome Powell announced at a post-meeting press conference.
The Fed also will begin trimming its nearly $9 trillion balance sheet, confirming that it will start selling $47.5 billion in assets per month. After three months, the central bank would increase asset reductions to $95 billion per month, a measure that might reduce liquidity from money markets for several years.
In a FOMC statement, the Fed acknowledged that it is concerned about elevated broad-based inflation pressures.
“Although overall economic activity edged down in the first quarter, household spending and business fixed investment remained strong. Job gains have been robust in recent months, and the unemployment rate has declined substantially. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures,” the FOMC said.
“The invasion of Ukraine by Russia is causing tremendous human and economic hardship. The implications for the U.S. economy are highly uncertain. The invasion and related events are creating additional upward pressure on inflation and are likely to weigh on economic activity. In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions. The Committee is highly attentive to inflation risks.”
The Fed’s decisions influence borrowing costs, which is why interest rates are very important. When rates are higher, it might discourage more consumers from taking out a mortgage or applying for an automobile loan.
By Andrew Moran
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