(Fed) Fed increased the benchmark interest rate by half a percentage point, the largest increase since 2000, the same as the market expected.
Following Wednesday’s decision, the federal-funds rate of the central bank will now be pushed to a range of 0.75% to 1%. Markets expect the rate to rise to 2.75%-3% by the end of the year.
Fed’s Chair Jerome Powell said that an additional half-a-point increase could be called in June and July, in a bid to slow down the inflation, which is at a four-decade high. The increase will see the rate hit a range last seen in the pre-pandemic period.
The latest rate increase is the most aggressive by the Fed in more than 20 years. The central bank only increases rates by a quarter-point, with the last time it increased by half a point being in 2000.
The Fed officials further said that they will start reducing the Treasury and mortgage securities passively. The central bank will allow bonds to mature without reinvesting into new securities.
Officials are expected to allow up to $30 billion and $17.5 billion in Treasury and mortgage bonds, respectively, to roll off for three months, starting June. After that, another $60 billion and $35 billion of each will be allowed to run off each month.
Powell still left the door open regarding the extent to which the central bank will raise rates. The Fed Chair said the central bank does not need to decide now, but won’t hesitate to do so if necessary.
SPY is down -0.66% on premarket, DXY is up +0.32%
