Stocks jump after Fed interest rate decision: live updates

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Federal funds target rate

Federal Funds

target rate

Federal funds target rate

Federal Funds

target rate

Federal Funds

target rate


The Federal Reserve raised interest rates by half a percentage point and announced a plan to reduce its huge bond holdings, decisive moves aimed at curbing the fastest inflation in four decades.

Wednesday’s decision marked the Fed’s largest interest rate hike since 2000, and by simultaneously shrinking its balance sheet by nearly $9 trillion, the Fed is rapidly withdrawing support for the economy. Together, the policies are likely to ripple through markets and the economy as money becomes more expensive to borrow.

The rapid withdrawal of monetary aid is a sign that the central bank is seriously considering cooling the economy and the labor market as rapid inflation persists and officials fear it may become more permanent. Prices have been climbing at the fastest rate in 40 years for months now.

At a news conference following Wednesday’s decision, Fed Chairman Jerome H. Powell said “inflation is way too high” and the Fed is “act quickly to bring it back down.”

He noted that policymakers could continue to raise rates by larger-than-normal increments, as they did on Wednesday.

“There is a general feeling within the committee that additional 50 basis point increases should be on the table at the next two meetings,” Powell said.

Policymakers have spent much of 2021 hoping inflation would abate on its own as supply shortages ease and the economy stabilizes after the early disruptions of the pandemic. But normality has not yet returned and inflation has only accelerated. Today, new pandemic-related lockdowns in China and war in Ukraine are driving up the prices of goods, food and fuel even further. At the same time, workers are scarce and wages are rising rapidly in the United States, fueling higher prices for services as consumer demand remains strong.

“Lockdowns in China are likely to exacerbate supply chain disruptions,” and the invasion of Ukraine “and related events are creating additional upward pressure on inflation and are likely to weigh on economic activity,” the May Federal Open Market Committee statement said. “The committee is very attentive to the risks of inflation.”

The Fed reiterated that “inflation remains elevated, reflecting pandemic-related supply and demand imbalances, rising energy prices and broader price pressures.”

Fed officials decided they no longer had the luxury of waiting for inflation to moderate on their own and should continue raising rates at their meetings throughout the year, many investors expecting big increases in June and July. Some officials have even signaled that a 0.75 percentage point move could be possible, but Mr Powell said such a large increase is “not something the committee is actively considering”.

While the Fed acknowledged that inflation could remain rapid as supply disruptions in China and war in Ukraine exacerbate price pressures, some analysts doubted that would justify an even bigger move.

“What they’re trying to do is tell the market that inflation could be higher in the near term,” Gennadiy Goldberg, rates strategist at TD Securities, said of the Fed’s benchmarks. Ukraine and China. “That doesn’t suggest they should rise 75 basis points, because that’s not the kind of inflation the Fed can control.”

Deciding how quickly to remove political support is a difficult exercise. Central bankers are hoping to act decisively enough to stop soaring prices, without curbing growth so aggressively that they tip the economy into a painful recession. Still, designing a so-called soft landing will likely be a challenge.

Mr Powell nodded at this balancing act, saying “I expect it to be very difficult, it won’t be easy.” But he added “I think we have a good chance of having a soft or soft landing.”

The Fed plans to shrink its balance sheet starting in June by allowing securities to mature without reinvestment. He said Wednesday he would eventually let up to $60 billion in Treasury debt expire each month, as well as $35 billion in mortgage-backed debt. This plan will be fully implemented from September.

The Fed’s plan to reduce its holdings is expected to slow financial markets and could help cool the housing market by increasing long-term borrowing costs, adding to the effect of the bank’s interest rate hikes central. The Fed’s anticipated measures have already started to drive up mortgage rates.

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