Federal financial target ratio
Federal financial target ratio
The Federal Reserve raised interest rates by half a percentage point and announced decisive action to cut its massive securities, aimed at reducing the sharpest inflation in four decades.
Wednesday’s move marked the central bank’s largest interest rate hike since 2000, while shrinking its nearly $ 9 trillion balance sheet, and the central bank’s rapid withdrawal of support from the economy. Together, policies will make money more expensive to borrow through markets and the economy.
The rapid withdrawal of monetary aid is a sign that the central bank is intensifying its efforts to cool the economy and the job market, as rapid inflation continues and officials are worried that it may become permanent. Prices are on the rise The fastest pace in 40 years For months now.
Policymakers hoped that for most of 2021 inflation would ease automatically as the supply deficit moderated and the economy stabilized following the early-epidemic crisis. But the default has not yet returned, and inflation has accelerated. Now, the new epidemic is related Locks in China And this War in Ukraine Prices of goods, food and fuel are rising further. At the same time, the shortage of workers and Wages will rise Fast, feeding in the United States Higher prices for services Because consumer demand is strong.
“Locks in China are likely to exacerbate supply chain disruptions, and the invasion of Ukraine” and related events will create additional upward pressure on inflation and weigh on economic activity ” Federal Open Market Committee Report May said. “The committee is focusing more on the risks of inflation.”
“Inflation has risen, reflecting supply and demand fluctuations related to epidemics, high energy prices and broader price pressures,” the central bank reiterated.
Fed officials have decided that they do not have the luxury of waiting for inflation to subside automatically, and that large increases are possible in June and July and are expected to continue to raise rates at their meetings throughout the year. Some officials have even signaled the possibility of a 0.75 percentage point move, although there is no consensus around such a plan.
While the central bank acknowledges that inflation will accelerate due to China’s supply disruptions and war price pressures in Ukraine, some analysts doubt it will guarantee even bigger action.
“We have to tell the market what they are trying to do – inflation may be higher in recent times,” said Genie Goldberg, a rate strategist at TD Securities, about the central bank’s Ukraine and China notes. “They did not recommend raising it to 75 basis points because it is not the type of inflation that the central bank can control.”
Determining how quickly policy support can be eliminated is a difficult task. The central bankers are hoping to move decisively enough to control pops in prices, rather than aggressively restricting growth to push the economy into a painful recession. Still Engineering called soft landing can be a challenge.
Central Bank Chairman Jerome H. Powell will answer reporters’ questions at 2:30 p.m.
The central bank plans Summarize its balance sheet Will begin in June by allowing the bonds to mature without reinvestment. The Treasury said Wednesday it would allow up to $ 60 billion in debt to expire each month and allow $ 35 billion in mortgage support debt. The scheme will be fully implemented from September.
The central bank’s shareholding plan will help cool the housing market by expelling steam from the financial markets and raising long-term borrowing costs, strengthening the effect of the central bank’s interest rate hike. The expected moves by the central bank have already begun to raise mortgage rates.