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Shares jump after Fed decision on interest rates: Live updates







Shares jump after Fed decision on interest rates: Live updates

Target rate for federal funds

Federal funds

target set

Target rate for federal funds

Federal funds

target set

Federal funds

target set


The Federal Reserve raised interest rates by half a percentage point and announced a plan to shrink its massive bond holdings, crucial measures aimed at curbing the fastest inflation in four decades.

Wednesday’s move marked the Fed’s largest interest rate hike since 2000, and chairman Jerome H. Powell signaled at a press conference after the meeting that another half percentage point increase will be “on the table” at the Fed’s upcoming meetings.

By shrinking the balance sheet by almost $ 9 trillion while raising interest rates significantly, the Fed has set a course to quickly withdraw support from the economy. The twin policy is likely to ricochet through the markets and the economy as money becomes more expensive to borrow.

The rapid withdrawal is a sign that the central bank is starting to get serious about cooling the economy and the labor market as the rapid inflation persists and officials become nervous that it may become more permanent. Prices have been rising at the fastest pace in 40 years for several months now.

“Inflation is far too high, and we understand the difficulties it is causing, and we are moving fast to bring it down again,” Powell told a news conference on Wednesday.

“There is a broad opinion in the committee that another 50 basis points should be put on the table at the next meetings,” he added later.

Politicians spent much of 2021 hoping that inflation would subside on its own as supply shortages moderated and the economy recovered from early pandemic disruptions. But normalcy has not yet returned, and inflation has only accelerated. New pandemic-related shutdowns in China and the war in Ukraine now further increase the prices of goods, food and fuel. At the same time, there is a shortage of workers and wages are rising rapidly in the United States, leading to higher prices for services as consumer demand remains strong.

“China’s solutions are likely to exacerbate supply chain disruptions,” and the invasion of Ukraine “and related events are creating further upward pressure on inflation and are likely to weigh on economic activity,” the Federal Open Market Committee said in May.

As shock continues to rage global supply, Fed officials have decided they no longer have the luxury of waiting for inflation to moderate on its own. Still, Mr. Powell shot down the idea of ​​more aggressive interest rate hikes. While some officials had signaled that a 0.75 percentage point move could be possible, Powell said Wednesday that such a large increase is “not something the committee is actively considering.”

Shares on Wall Street rose after Mr Powell’s remarks reassured investors who had begun to worry that the fight against inflation could push the economy into a recession. The S&P 500 jumped more than 2.3 percent in afternoon trading.

“Market observers over the past week have come to believe that a 75 basis point increase was a possibility, even if it was a distant one,” said Emily Bowersock Hill, CEO of Bowersock Capital Partners, a financial management firm. The “euphoria” in the stock market on Wednesday, Bowersock Hill said, also reflected the fact that the Fed did not say something that investors had not already expected.

Deciding how quickly to remove political support is a comprehensive exercise. Central bankers hope to move decisively enough to stop price increases, without curbing growth so aggressively that they plunge the economy into a painful recession. Nevertheless, it will probably be a challenge to construct a so-called soft landing.

Mr. Powell nodded to that balancing act and said “I expect this will be very challenging, it’s not going to be easy.” But he said “I think we have a good chance of having a soft or soft-ish” landing.

He later remarked at the press conference that he believes the Fed has “a good chance of restoring price stability without a recession.”

The Fed plans to shrink its balance sheet from June onwards by allowing securities to mature without reinvestment. It said on Wednesday that it would eventually allow up to $ 60 billion in government debt to expire each month, along with $ 35 billion in mortgage-backed debt. That plan will have been fully phased in from September.

The Fed’s plan to reduce its holdings is likely to take the steam out of the financial markets and may help cool the housing market as it raises long-term borrowing costs, and amplifies the effect of the central bank’s interest rate hikes. The Fed’s expected move has already begun to push up mortgage rates.



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