The central bank on Wednesday increased its benchmark interest rate by 50-basis points, the most aggressive action yet in its battle against 40-year high inflation.
Fed Chairman Jerome Powell said, “Inflation is much too high, and we understand the hardship it is causing. We’re moving expeditiously to bring it back down. We’re strongly committed to restoring price stability.”
According to the chairman’s statements, there can be multiple 50-basis point rate increases ahead.
Along with the increase in interest rates, the central bank also indicated it will begin to cut asset holdings on its balance sheet. The Fed had been purchasing bonds to keep rates low and flowing of money through the economy in the pandemic, but an increase in costs has now forced central bank to take different approach.
Markets now anticipate the federal reserve to continue increasing rates in the coming months. Powell said, “moves of 50 basis points should be on the table at the next couple of meetings.”
Powell added, “Seventy-five basis points is not something the committee is actively considering despite market pricing that had leaned heavily towards the Fed hiking by three-quarters of a percentage point in June. The American economy is very strong and well-positioned to handle tighter monetary policy.”
Collin Martin, fixed income strategist at Charles Schwab said, “No surprises on our end. We’re a little bit less aggressive on our expectations than the markets are. Do think another 50 basis point increase in June seems likely. We think inflation is close to peaking. If that shows some signs of peaking and declines later in the year, that gives the Fed a little leeway to slow down on such an aggressive pace.”