The US Federal Reserve yesterday approved the largest interest rate increase since 1994, in a bid to rein in accelerating inflation and ongoing money market turmoil. The Fed raised interest rates yesterday by 75 basis points to 1.5–1.75%, and the board said it will continue to reduce the asset portfolio on its $9 trillion balance sheet, in a show of force aimed at restoring market confidence that it is serious about controlling inflation. Fed Chair Jerome Powell said in a post-meeting press conference that the Fed is “very alert” to inflation and will move quickly to tame prices .
The same in July? Powell raised expectations for a further increase of 75 basis points at the upcoming meeting of the Fed’s Federal Open Market Committee. He told reporters that an increase of 50 or 75 basis points “looks likely,” but he did not expect moves of this magnitude to become more frequent.
US interest rates will be much higher than expectations by the end of this year: US monetary policy officials currently expect to end 2022 with interest rates of 3.4% and reach 3.8% by the end of 2023, which far exceeds expectations that were last March of 1.9% in 2022 and 2. 8% in 2023.
Can the Fed avoid a recession? “The odds of a safe landing are not zero, but not high,” one analyst told the Financial Times. “It will be a more difficult target as time goes on this year.”
Markets welcomed the decision, as US stocks rose after days of losses.
The picture was mixed in Asia this morning, with shares rebounding in China and South Korea, while other Asian markets are seeing declines. And future market transactions indicate that European and American stocks will witness more gains when trading begins later today.
The Fed’s decision made headlines everywhere this morning: Reuters | Associated Press | Bloomberg | Financial Times | The Wall Street Journal | CNBC | The New York Times | Washington Post.
