US Federal Reserve To Raise Interest Rates by 0.5 Percent-FOMC

The U.S Federal Reserve announced the rise of the Effective Federal Funds Rate by 0.5 percent on Wednesday, after its monthly meeting. This increase which governs how much banks can lend to one another, by between 0.5 percent and 0.75 percent, represents the single largest since 2000.

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According to the central bank’s Federal Open Market Committee (FOMC), “the Committee decided to raise the target range for the federal funds rate to 3/4 to 1 percent and anticipates that ongoing increases in the target range will be appropriate.” Last March, the Committee had raised the interest rate to between 0.25 to 0.50 percentage points.

“Inflation is much too high and we understand the hardship it is causing,” said Fed Chair Jerome Powell during a press conference. “We’re moving expeditiously to bring it back down.” He added that the FOMC foresees that the ongoing rise “will be appropriate,” adding that “there is a broad sense on the committee that additional 50-base-point increases” should be presented to the commission at the next meetings.

Powell highlighted that the “underlying momentum” of the U.S. economy “remains strong” regardless of the decreases in the first quarter of 2022. Otherwise, he said that the labor market is “extremely tight” and that wages are increasing very quickly. The Committee announced plans to cut its balance sheet of 9 trillion dollars in government and other debt securities gained in recent years in its tries to support the economy without having carried out a cut in interest rates.

The Fed Chair said to reporters that the committee would reduce the securities holdings “in a predictable manner,” including the Treasury securities, Treasury coupon securities, Treasury bills, and agency mortgage-backed securities.

The sharp rise in interests rate has come along with inflation reaching its highest record in 40 years and tends to continue increasing. According to the Consumer Price Index, the numbers released in April by the Bureau of Labor Statistics (BLS) have dropped that prices of goods have increased by 8.5 percent over the previous 12-month period.

Resulting of the COVID-19 pandemic and the U.S. sanctions on Russian petroleum products in response to Russia’s special operation in Ukraine, which caused gasoline prices to spike, the dollar’s value has been driven downward.