Fed starts raising interest rates for the first time in more than three years, tapering to begin in May at the earliest
Fed starts raising interest rates for the first time in more than three years, tapering to begin in May at the earliest
US interest rate hike
The U.S. Federal Reserve announced on the 16th that it raised the target range for the federal funds rate by 25 basis points to a level of 0.25% to 0.5%, in line with market expectations. This is the Fed's first rate hike since December 2018.
The Federal Reserve said in a statement after its regular two-day monetary policy meeting that U.S. economic activity and employment indicators continue to strengthen. U.S. job growth has been strong in recent months, and the unemployment rate has fallen sharply. Inflation remains high, reflecting supply and demand imbalances related to the new crown epidemic, rising energy prices and broader price pressures. The statement noted that the impact of the Russia-Ukraine conflict on the U.S. economy is highly uncertain, but in the near term, the situation and events could exacerbate upward inflationary pressures and dampen economic activity.
The statement said thatThe Fed seeks to achieve its goals of full employment and 2% longer-term inflation rate.By appropriately tightening its monetary policy stance, the Fed expects inflation to fall back to 2%, while the labor market will remain strong. In support of these objectives, the Fed has decided to raise the target range for the federal funds rate to between 0.25% and 0.5%, and expects that continued increases in this target range are appropriate. At some future regular meeting, the Fed will begin to reduce its asset holdings of U.S. Treasuries, agency bonds and agency mortgage-backed securities.
On the same day, the Federal Reserve also released a summary of economic forecasts that have received much attention from financial markets. The summary showed thatThe Fed lowered its median GDP growth estimate for this year by 1.2 percentage points to 2.8% and raised its median inflation estimate, the core PCE price index, for this year by 1.4 percentage points to 4.1%.In addition, the dot plot of the rate hike path in the outline shows that Fed officials forecast that the federal funds rate will rise to at least 1.875% by the end of 2022 and to about 2.75% by the end of 2023, suggesting that six more 25 basis point rate hikes will take place this year and three to four more of the same magnitude next year.
On the issue of balance sheet reduction, Fed interim Chairman Powell said at a press conference following the regular monetary policy meeting thatFed officials have made more progress in their discussions on tapering matters and will announce the start of tapering as soon as May, which will be faster than the previous cycle.Powell said.The Fed's top priority is to restore inflation to 2%, and tapering, which is equivalent to a disguised increase in interest rates, is an effective tool for tightening monetary policy.
The Wall Street Journal reported that the Fed's first rate hike in more than three years kicked off a series of subsequent rate hikes with the goal of preventing the U.S. economy from overheating and controlling inflation, which is at a 40-year high. A number of investment strategists said the Fed's statement and Powell's press conference was more "hawkish" than the market had expected. Due to the uncertainty of geopolitical risks, the Fed will flexibly adjust its monetary policy stance based on economic data, and if necessary, it may accelerate the tightening of policy at any time.
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