Federal Reserve raises interest rates by 0.5%, the sharpest rise in 22 years

Washington, May 5: The Federal Reserve has raised its benchmark interest rate by 0.5 percentage points, marking the sharpest rate hike since 2000, as it has taken more aggressive steps to curb the highest inflation in 40 years. The Federal Open Market Committee (FOMC), the Fed’s policy-making body, will raise the federal funds rate target range from 0.75 to 1 percent in a statement released Wednesday after the two-day policy meeting. Said that it was decided. ..

According to a statement, the Commission also decided on June 1 to reduce its holdings of government bonds and agency debt and agency mortgage-backed securities, Xinhua News Agency reports.

“Although overall economic activity fell in the first quarter, household spending and corporate fixed investment remained strong,” the Federal Reserve said. “In recent months, employment growth has been strong and the unemployment rate has dropped significantly.” The Pentagon, a US company involved in the Ukrainian military biolab, says Russia.

“Inflation continues to rise, reflecting supply-demand imbalances associated with pandemics, rising energy prices and rising price pressures,” the federal government said, with events related to the war between Russia and Ukraine inflating. He added that it is creating “additional upward pressure”. It can put pressure on economic activity.

In addition, the Covid-19-related blockade in China is likely to exacerbate supply chain disruptions, the statement said. “The Commission is very careful about inflation risk,” the Fed said.

The Federal Reserve usually raises interest rates by a quarter percentage point, and the newly announced half-percentage point hike is a more aggressive tightening mode, with an imminent move to shrink the $ 9 trillion balance sheet. Indicates a transition to. The Fed’s decision was aimed at combating soaring inflation, as there was growing concern that high inflation would take hold.

The Labor Department reported that the US Consumer Price Index (CPI) in March continued to rise at the fastest annual rate in 40 years, rising 8.5% year-on-year. This follows a 7.9% year-on-year increase in February.

The U.S. Consumer Expenditure (PCE) price index, the Fed’s preferred inflation indicator, has risen 6.6% in March over the past year, well above the Fed’s 2% inflation target, the Ministry of Commerce said. I reported last week.

“The labor market is very tight and inflation is too high,” Fed chairman Jerome Powell said in a virtual press conference Wednesday afternoon, and the Fed is moving “quickly” to reduce inflation. He said he was.

“The committee has broad implications that it plans to raise another 50 basis points (interest rates) at the next few meetings,” Powell told reporters.

When asked about the risks of a recession, the FRB chair said, “Landing or results are likely to be soft or weak” because households and businesses are in good financial condition and the labor market is very strong. Said.

Keeping in mind that the supply and demand of the labor market is unbalanced, he said the policy would ease demand, which would help reduce job vacancies. As more people return to the labor market, the balance between supply and demand will be regained. US stocks rose sharply after the Federal Reserve provided what was widely expected..

“It will give us the opportunity to lower wages and lower inflation without slowing the economy, causing a recession or raising the unemployment rate significantly,” he said. Said. However, Powell said soft landings are not guaranteed. “But I expect this to be very difficult. It won’t be easy,” he said.

(The above story was first published in Latest LY on May 5, 2022 at 11:38 am IST. For news and updates on politics, the world, sports, entertainment and lifestyle, please visit our website. Please log on to. Federal Reserve raises interest rates by 0.5%, the sharpest rise in 22 years

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