Business & Economy

US Federal Reserve approves biggest rate hike in two decades

By Marc Arcas

Washington, May 4 (EFE).- The United States Federal Reserve on Wednesday approved a rare half-point interest rate hike, the biggest increase in more than two decades, and indicated that more similar moves could be on the way to battle high inflation.

With this latest rate hike, double the one carried out in March, the target range for the Fed’s benchmark federal-funds rate now stands at between 0.75 percent and 1 percent.

In a press conference after the latest two-day meeting of the US central bank’s policy-making body, the Federal Open Market Committee, Fed Chairman Jerome Powell said “additional 50-basis-point increases should be on the table at the next couple of (FOMC) meetings.”

“Inflation is much too high. And we understand the hardship it is causing. And we’re moving expeditiously to bring it back down,” the Fed chairman added. “We have both the tools we need and the resolve that it will take to restore price stability on behalf of American families and businesses.”

He said, however, that at the moment the FOMC is not “actively considering” a 75-basis-point increase, a remark that sent the US dollar to a one-week low against a basket of currencies.

Prior to Wednesday, the last time the US central bank had announced a half-point interest rate hike was in 2000.

If the Fed does opt for a succession of 50-basis-point increases over the next several months, it is feasible that the federal-funds rate – the rate banks charge each other for short-term borrowing – could end the year at around 3 percent.

Powell said at the post-meeting news conference that he expects the shift to a more restrictive, inflation-fighting monetary policy (the Fed also announced Wednesday that it will start to shrink its massive $9 trillion portfolio of Treasury and mortgage bonds on June 1) can be carried out “without significant increase in unemployment or … a really sharp slowdown.”

“The economy and the country have been through a lot over the past two years and have proved resilient. It is essential that we bring inflation down if we are to have a sustained period of strong labor market conditions that benefit all,” the central bank chief said.

Powell said there is a good chance the economy can be cooled and inflation tamed through a “soft or softish landing,” noting that the US labor market is “extremely tight” and that “wages are running at the highest level in many decades … because of an imbalance between supply and demand and the labor market.”

In that regard, there is a downside to high wages because they further fuel inflation, according to the Fed chief.

Powell also said that households and businesses are in very strong financial shape, with “excess savings on balance sheets.”

In June, July and August, the Fed will allow up to $30 billion in Treasury bonds and $17.5 billion in mortgage-backed securities per month to come off of its balance sheet.

Starting in September, up to $60 billion in Treasurys and $35 billion in mortgage bonds will be permitted to roll off every month.

The annual US inflation rate reached 8.5 percent in March, the highest level since 1981, while the inflation rate for April will be announced on May 11 and is expected to be equal to or even higher than the previous month’s.

The next meeting of the Fed’s monetary policy-making body is scheduled for June 14-15. EFE


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