https://sputnikglobe.com/20220504/us-federal-reserve-increases-interest-rates-by-05-in-biggest-hike-of-21st-century-1095268635.html
US Federal Reserve Increases Interest Rates by 0.5% in Biggest Hike of 21st Century
US Federal Reserve Increases Interest Rates by 0.5% in Biggest Hike of 21st Century
Sputnik International
US stocks stalled on Wednesday after rallying earlier in the week, with the S&P 500 taking the biggest hit, in anticipation of the Fed’s decision following the... 04.05.2022, Sputnik International
2022-05-04T18:06+0000
2022-05-04T18:06+0000
2022-05-04T19:58+0000
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In a move anticipated for weeks, the US Federal Reserve has increased the Effective Federal Funds Rate, which governs how much banks can lend to one another, by between 0.5% and 0.75%. It is the single largest increase since 2000 - a sign of how serious the inflation problem is.“The Committee decided to raise the target range for the federal funds rate to 3/4 to 1 percent and anticipates that ongoing increases in the target range will be appropriate,” the central bank’s Federal Open Market Committee, or FOMC, said in a statement. In March, the FOMC raised the interest rate to between at 0.25 to 0.50 percentage points.Powell said the FOMC anticipates ongoing increases “will be appropriate,” adding that “there is a broad sense on the committee that additional 50-base-point increases” should be on the table at several upcoming meetings. He noted that the “underlying momentum” of the US economy “remains strong” despite decreases in the first quarter of 2022. However, he noted the labor market is “extremely tight” and that wages are rising very quickly.The Federal Open Market Committee also announced plans to reduce its balance sheet of $9 trillion in government and other debt securities that it has bought up in recent years in an attempt to buttress the economy without further cutting interest rates. The Fed plans to slash that by $95 billion a month, beginning in June.Powell told reporters that the Fed would be reducing securities holdings “in a predictable manner,” including Treasury securities, Treasury coupon securities, and Treasury bills, and agency mortgage-backed securities.The aggressive rate hike comes as inflation, already hitting a 40-year high earlier this year, has continued to increase. According to numbers released in mid-April by the Bureau of Labor Statistics (BLS), the price of consumer goods tracked by the Consumer Price Index increased by 8.5% over the previous 12-month period.A number of factors have driven the dollar’s value downward, including shortages and speculation caused by manufacturing and shipping interruptions due to the COVID-19 pandemic, and the US boycott of Russian petroleum products in retaliation for Russia’s special operation in Ukraine, which caused gasoline prices to spike.Prices in global markets continued to climb on Wednesday as the European Union discussed its own proposed ban on Russian imports, which supply nearly half of the bloc’s energy needs. Brent Crude, the international price benchmark for crude oil, increased by 4.47% on Wednesday, hitting $109.4 per barrel. Natural-gas prices also rose by 4% to $8.35 per million British thermal units. For petroleum, that is a 57% increase from a year ago, while for natural gas the increase is nearly 300%, according to The Wall Street Journal.Fed chair Jerome Powell has long tolerated inflation as the price of the US’ economic recovery from the catastrophic crash that heralded the beginning of the COVID-19 pandemic, when much of the globe paused trade for several weeks and the US economy contracted by 20%. That tolerance ended in March 2022, when the Fed increased interest rates by 0.25 percentage points in response to record-level inflation. The central bank is expected to continue increasing interest rates to at least 2.7% by the end of the year, in an effort to reduce inflation to below 2% per year.
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US Federal Reserve Increases Interest Rates by 0.5% in Biggest Hike of 21st Century
18:06 GMT 04.05.2022 (Updated: 19:58 GMT 04.05.2022) US stocks stalled on Wednesday after rallying earlier in the week, with the S&P 500 taking the biggest hit, in anticipation of the Fed’s decision following the end of its monthly meeting.
In a move
anticipated for weeks, the US Federal Reserve has increased the Effective Federal Funds Rate, which governs how much banks can lend to one another, by between 0.5% and 0.75%. It is the single largest increase since 2000 - a sign of how serious the inflation problem is.
“The Committee decided to raise the target range for the federal funds rate to 3/4 to 1 percent and anticipates that ongoing increases in the target range will be appropriate,” the central bank’s Federal Open Market Committee, or FOMC, said in a statement. In March, the FOMC raised the interest rate to between at 0.25 to 0.50 percentage points.
“Inflation is much too high and we understand the hardship it is causing,” Fed Chair Jerome Powell told reporters at a press conference. “We’re moving expeditiously to bring it back down.”
Powell said the FOMC anticipates ongoing increases “will be appropriate,” adding that “there is a broad sense on the committee that additional 50-base-point increases” should be on the table at several upcoming meetings.
He noted that the “underlying momentum” of the US economy “remains strong” despite decreases in the first quarter of 2022. However, he noted the labor market is “extremely tight” and that wages are rising very quickly.
The Federal Open Market Committee also announced plans to reduce its balance sheet of $9 trillion in government and other debt securities that it has bought up in recent years in an attempt to buttress the economy without further cutting interest rates. The Fed plans to slash that by $95 billion a month, beginning in June.
Powell told reporters that the Fed would be reducing securities holdings “in a predictable manner,” including Treasury securities, Treasury coupon securities, and Treasury bills, and agency mortgage-backed securities.
The aggressive rate hike comes as inflation, already hitting a 40-year high earlier this year, has continued to increase. According to
numbers released in mid-April by the Bureau of Labor Statistics (BLS), the price of consumer goods tracked by the Consumer Price Index increased by 8.5% over the previous 12-month period.
A number of factors have driven the dollar’s value downward, including shortages and speculation caused by manufacturing and shipping interruptions due to the COVID-19 pandemic, and the US boycott of Russian petroleum products in retaliation for Russia’s special operation in Ukraine, which caused gasoline prices to spike.
Prices in global markets continued to climb on Wednesday as the European Union discussed its own proposed ban on Russian imports, which supply nearly half of the bloc’s energy needs. Brent Crude, the international price benchmark for crude oil,
increased by 4.47% on Wednesday, hitting $109.4 per barrel. Natural-gas prices also rose by 4% to $8.35 per million British thermal units. For petroleum, that is a 57% increase from a year ago, while for natural gas the increase is nearly 300%, according to
The Wall Street Journal.
Fed chair Jerome Powell has
long tolerated inflation as the price of the
US’ economic recovery from the catastrophic crash that heralded the beginning of the COVID-19 pandemic, when much of the globe paused trade for several weeks and the US economy contracted by 20%. That tolerance
ended in March 2022, when the Fed increased interest rates by 0.25 percentage points in response to record-level inflation. The central bank is expected to continue increasing interest rates to at least 2.7% by the end of the year, in an effort to reduce inflation to below 2% per year.
“Volatility is likely to continue. Rate hikes have just begun, inflation looks sticky, many geopolitical issues have no obvious offramp, and midterm election rhetoric is just ramping up”, Ross Mayfield, an investment strategy analyst at Baird, told clients earlier this week, according to CNBC. “Though the domestic economy has been resilient, corporate earnings are hanging tough, and the US consumer continues to spend, instability - driven by inflation and rates - should continue in the near-term. Have we seen this year’s market low? Possibly not”.
