Fed Targets Inflation With Expected Half Point Hike, Will Reduce Assets
The US Federal Reserve (Fed) raised interest rates by 0.5 percentage points, to 0.75%-1%, in line with what analysts expected and what Fed Chair Jerome Powell has previously communicated. (This is a developing story and is being updated.)
"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 said, adding that ongoing increases in the target range will be appropriate as they expect inflation to return to its 2% objective and the labor market to remain strong.
Also, the central bank decided to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities on June 1.
The decision today followed comments from Fed Chair Powell in late April, saying with regards to interest rate hikes that “it is appropriate in my view to be moving a little more quickly.” The comments came as the US is struggling with the highest inflation since the early 1980s.
According to multiple sources, including a Bloomberg report and an article by economist Mohamed A. El-Erian, interest rate swap traders have already fully priced in 50-basis point hikes for each of the next three Fed meetings – in June, July, and September.
If it were to materialize, such a hiking trajectory would be the most aggressive seen from the Fed in three decades.
Commenting ahead of the announcement from the Fed, Tony Farren, managing director at Mischler Financial
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