Stocks jump after Fed interest rate decision: live updates


Federal funds target rate

Federal Funds

target rate

Federal funds target rate

Federal Funds

target rate

Federal Funds

target rate

The Federal Reserve raised interest rates by half a percentage point and announced a plan to reduce its huge bond holdings, decisive moves aimed at curbing the fastest inflation in four decades.

Wednesday’s decision marked the Fed’s largest interest rate increase since 2000, and Chairman Jerome H. Powell signaled at a press conference after the meeting that further increases of half a point percent would be “on the table” at future Fed meetings.

By shrinking its balance sheet by nearly $9 trillion while dramatically raising rates, the Fed has paved the way to quickly withdraw support from the economy. The twin policies are likely to ricochet through markets and the economy as money becomes more expensive to borrow.

The rapid pullback is a sign that the central bank is seriously considering cooling the economy and labor market as rapid inflation persists and officials fear it may become more permanent. Prices have been climbing at the fastest rate in 40 years for months now.

“Inflation is far too high, and we understand the difficulties it is causing, and we are moving quickly to bring it down,” Powell said at his press conference on Wednesday.

“There is a general feeling within the committee that additional increases of 50 basis points should be on the table at future meetings, he added later.

Policymakers have spent much of 2021 hoping inflation would abate on its own as supply shortages ease and the economy stabilizes after the early disruptions of the pandemic. But normality has not yet returned and inflation has only accelerated. Today, new pandemic-related lockdowns in China and war in Ukraine are driving up the prices of goods, food and fuel even further. At the same time, workers are scarce and wages are rising rapidly in the United States, fueling higher prices for services as consumer demand remains strong.

“Lockdowns in China are likely to exacerbate supply chain disruptions,” and the invasion of Ukraine “and related events are creating additional upward pressure on inflation and are likely to weigh on economic activity,” the May Federal Open Market Committee statement said.

As shocks continue to disrupt global supply, Fed officials have decided they no longer have the luxury of waiting for inflation to moderate on its own. Still, Mr. Powell rejected the idea of ​​more aggressive rate increases. While some officials had signaled that a 0.75 percentage point move could be possible, Powell said Wednesday that such a large increase is “not something the committee is actively considering.”

Shares on Wall Street rallied after Mr Powell’s remarks, calming investors who had begun to worry that the fight against inflation could push the economy into a recession. The S&P 500 jumped more than 2.3% in afternoon trading.

“Market watchers over the past week have started to think a 75 basis point hike is a possibility, even if it’s remote,” said Emily Bowersock Hill, managing director of Bowersock Capital Partners, a financial management company. The “euphoria” in the stock market on Wednesday, Ms. Bowersock Hill said, also reflected the fact that the Fed hadn’t said anything that investors weren’t already expecting.

Deciding how quickly to remove political support is a difficult exercise. Central bankers are hoping to act decisively enough to stop soaring prices, without curbing growth so aggressively that they tip the economy into a painful recession. Still, designing a so-called soft landing will likely be a challenge.

Mr Powell nodded at this balancing act, saying “I expect it to be very difficult, it won’t be easy.” But he said “I think we have a good chance of having a soft or soft landing.”

He later noted at the press conference that he thought the Fed had “a good chance of restoring price stability without a recession.”

The Fed plans to shrink its balance sheet starting in June by allowing securities to mature without reinvestment. He said Wednesday he would eventually let up to $60 billion in Treasury debt expire each month, as well as $35 billion in mortgage-backed debt. This plan will be fully implemented from September.

The Fed’s plan to reduce its holdings is expected to slow financial markets and could help cool the housing market by increasing long-term borrowing costs, adding to the effect of the bank’s interest rate hikes central. The Fed’s anticipated measures have already started to drive up mortgage rates.

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