Fed raises rates by half a percentage point — the biggest hike in two decades — to fight inflation

cnbc.com:

WASHINGTON — The Federal Reserve on Wednesday raised its benchmark interest rate by half a percentage point as the most aggressive step yet in its battle against generational highs in inflation.

«Inflation is much too high and we understand the hardship it is causing, we're moving expeditiously to bring it back down,» Fed Chairman Jerome Powell said during a news conference which he started by saying he wanted to «directly address the American people.»

Along with the move higher in rates, the central bank indicated it will begin reducing asset holdings on its $9 trillion balance sheet. The Fed had been buying bonds to keep interest rates low and money flowing through the economy, but the surge in prices has necessitated a dramatic rethink in monetary policy.

The plan outlined Wednesday will see the balance sheet reduction happen in phases as the Fed will allow a capped level of proceeds from maturing bonds to roll off each month while reinvesting the rest. Starting June 1, the plan will see $30 billion of Treasurys and $17.5 billion on mortgage-backed securities roll off. After three months, the cap for Treasurys will increase to $60 billion and $35 billion for mortgages.

Those numbers were mostly in line with discussions at the last Fed meeting as described in minutes from the session, though there were some expectations that the increase in the caps would be more gradual.

Markets were prepared for both moves but nonetheless have been volatile throughout the year. Investors have relied on the Fed as an active partner in making sure markets function well, but the inflation surge has necessitated tightening.

Stocks rose following the announcement while Treasury yields backed off their earlier highs.

Markets now expect the