In a statement released yesterday evening Eastern time, the Federal Open Market Committee (FOMC) announced it was raising the federal funds rate by 50 basis points. It is also beginning quantitative tightening (QT).
The Federal Reserve raises interest rates
Yesterday’s interest rate hike by 50 bps. was – what is worth emphasizing – in line with market expectations and forecasts of most economists. Some experts have even suggested an increase of 75 bps. It was the first 50-point increase in the federal funds rate in 22 years.
The Committee has decided to raise the range of the federal funds rate to 0.75-1.00% and expects that further increases will be appropriate. In addition, the Committee decided to start reducing its portfolio of Treasury and mortgage bonds from 1 June.
– we read in the new FOMC statement.
Chairman Jerome Powell has been suggesting a hike for several weeks.
Assessing the state of the economy, the Federal Reserve management noted a strong increase in investment, a strong increase in employment and a further decrease in unemployment. Inflation has been described as “elevated” and reflecting the supply-demand imbalance caused by the pandemic (read: lockdowns), higher energy prices and “broad price pressures”. The FOMC did not add that the expansionary monetary policy pursued over the previous two years also contributed to such high inflation.
The Committee will be very attentive to inflationary risks
– added in the communication of the US central bank.