Us Fed Hikes Rates By 50 Bps, Says Highly Attentive To Inflation Risks

In its statement, Fed stated that the committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With appropriate firming in the stance of monetary policy, the Committee expects inflation to return to its 2% objective and the labor market to remain strong.

Following this, FOMC decided to raise the target range for the federal funds rate to 0.75% to 1% and anticipates that “ongoing increases in the target range will be appropriate.”

This would be Fed’s biggest hike in over two decades, showcasing its aggressive approach to tame mounting inflations.

The rate hike follows a quarter-point hike in March this year which had ended the two years of near-zero rates to lift the US economy amidst uncertainties of geopolitical tension, inflationary pressure, and Covid-19 impact among others.

Federal Reserve Chair Jerome H. Powell at the monetary policy conference today said, “I would like to take this opportunity to speak directly to the American people. Inflation is much too high. We understand the hardship it is causing, and we are moving expeditiously to bring it back down.”

Additionally, FOMC has also decided to start reducing its holdings of Treasury securities and agency debt, and agency mortgage-backed securities on June 1.

FOMC said, “Although overall economic activity edged down in the first quarter, household spending and business fixed investment remained strong. Job gains have been robust in recent months, and the unemployment rate has declined substantially.”

It added, “Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.”

Talking about the Russia-Ukraine war, FOMC said, “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.”

FOMC expects supply chain disruption due to the Covid surge in China which has resulted in strict lockdown and restrictions.

“In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions,” FOMC said.

FOMC added, “The Committee is highly attentive to inflation risks.”

For the latest monetary policy action, voting members were – Jerome H. Powell, Chair; John C. Williams, Vice-Chair; Michelle W. Bowman; Lael Brainard; James Bullard; Esther L. George; Patrick Harker; Loretta J. Mester; and Christopher J. Waller. Patrick Harker voted as the alternate member at this meeting.