US Central Bank Raises Rates by Half a Percentage Point, Fed’s Powell Says Similar Hikes Are on the Table

The U.S. Federal Reserve raised its benchmark interest rate Wednesday, the biggest increase in two decades. “Inflation is too high,” central bank Chairman Jerome Powell said after the Fed raised rates by 0.5%.

The FOMC decided to raise rates 3/4 to 1%, the largest increase in two decades

• On May 4, 2022, the U.S. central bank raised the benchmark interest rate to curb rising inflation. The Federal Open Market Committee (FOMC) explained in a press release Wednesday that the 12 FOMC members “decided to raise the target range for the federal funds rate to 3/4 to 1%.”
• The Federal Reserve also stated that the central bank “expects that a further increase in the target range would be appropriate.” In addition, in the FOMC statementreleased at 2:00 p.m. (ET), said that the war between Ukraine and Russia and the Covid 19-related lockouts in China made “the implications for the U.S. economy highly uncertain.”
• Speaking to reporters after the FOMC decision, Fed Chairman Jerome Powell said: “Inflation is too high, and we understand the difficulties it is causing, and we are moving quickly to bring it down.” The central bank governor added that there is “a broad consensus in the committee that an additional 50 basis point rate hike should be on the table over the next couple of meetings.”
• The May 4 rate hike of 3/4 to 1 percent is the second rate hike in 2022 after the Fed raised the benchmark rate on March 16, 2022. At that time, the Fed raised the interest rate from near zero to 0.25 percent with the goal of reaching the 0.25 percent and 0.50 percent target
• The FOMC statement further added that U.S. economic activity “declined in the first quarter” and stressed that “[inflation] remains elevated.”
• In addition to raising the rate, the Fed plans to cut spending on Treasury securities and mortgage-backed securities.
• “The Committee has decided to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities on June 1, as described in the Fed’s Balance Sheet Size Reduction Plans, which were released with this statement,” the FOMC concluded.
• Despite the rate hike, cryptocurrency markets were positive Wednesday as the crypto economy rose 5.7% in the last 24 hours. The price of bitcoin (BTC) jumped 5.6% and ethereum (ETH) rose 6.5% against the US dollar.
• In addition, stocks were also up Wednesday afternoon as the leading U.S. stock indices (NYSE, Dow Jones, Nasdaq, S&P 500) rose significantly. For example, the Dow Jones Industrial Average jumped more than 900 points, suggesting the central bank move was the right one.

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