US Federal Reserve Chairman Jerome Powell speaks during a news conference in Washington, DC, on May 4, 2022. - The Federal Reserve on Wednesday raised the benchmark lending rate by a half percentage point in its ongoing effort to contain the highest inflation in four decades. (Photo by Jim WATSON / AFP) (Photo by JIM WATSON/AFP via Getty Images)

Federal Reserve announces biggest interest rate hike in 22 years

This is the first time in 22 years that the central bank has raised its rates so much. The decision was unanimous, with the agreement of the 12 members of the Federal Open Market Committee responsible for defining policies.
In March, the Fed raised its benchmark borrowing rate for the first time since late 2018, raising it by a quarter of a percentage point.

At his press conference after Wednesday’s meeting, Fed Chairman Jerome Powell said further rate hikes of half a percentage point would be on the table for future meetings. But the bank is not looking to grow:

“A 75 basis point increase is not something the committee is actively considering,” Powell told reporters. “If inflation goes down, we’re not going to stop, we’re just going to go down to 25 basis point increases,” he added.

Americans are grappling with rising costs everywhere from groceries to the gas pump. Maintaining price stability is part of the Fed’s mandate, but so far inflation has continued to climb, leading some to wonder if the central bank is behind policy.

But Powell fired back at that point on Wednesday.

He also started Wednesday’s press conference by addressing the American people, saying that “inflation is far too high and we understand the difficulties it is causing. We are moving quickly to roll it back.”

But with the Russian-Ukrainian conflict still raging, pressures on food and energy prices are unlikely to ease any time soon.

“The implications for the US economy are highly uncertain,” the Fed statement said. “The invasion and related events are creating additional upward pressure on inflation and are likely to weigh on economic activity.”

The bank also warned that pandemic-related lockdowns in China will likely strain already strained supply chains.

Together, these issues could put additional pressure on consumer prices over the coming months.

But monetary policy tools are not a silver bullet. Fed actions need time to take effect.

To further tighten monetary conditions, the central bank will also begin to draw down its massive balance sheet, which has ballooned during the pandemic.

Starting in June, it will let $30 billion in Treasury securities and $17.5 billion in mortgage-backed securities flow each month between June and August, before increasing those amounts to $60 billion and $35 billion. dollars, respectively, in September.

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