The US Federal Reserve raised the federal funds rate by 75 basis points, which subsequently moves to a range of 1.5% to 1.75%.
The US central bank started its key interest rate hike cycle last March, with an increase of 25 basis points. At the next meeting, in May, it achieved an even larger increase: 50 basis points. At the time, the possibility of opting for a 75-point increase was ruled out and the consensus indicated two additional increases, of 50 basis points each, at the June and July meetings.
It turns out that since the end of last week, bets have begun to grow that the Federal Reserve may go to 75 basis points, in order to try to contain inflation – which unexpectedly renewed in May the maximum for the past 40 years (at 8.6%), as he estimated that the peak have passed.
And that’s exactly what happened, making it the biggest increase since 1994.
In addition, the Fed has signaled that it will continue to raise benchmark interest rates this year at the fastest pace in decades — while continuing to try to slow the economy and fight inflation.
Central Bank Governor Jerome Powell had already said that the Fed may raise interest rates at every meeting this year, but the volume turns out to be larger than initially expected.
However, the point chart – a map showing how each central bank representative estimates changes in policy rates – indicates a 50 basis point rise in policy rates at all other Fed meetings this year, namely in July, September, November and December.
According to the dot plot, the Fed indicates the policy rate at 3.4% at the end of 2022, 3.8% at the end of 2023 and 3.4% at the end of 2024.
However, the Federal Reserve changed the reference to the 2% inflation target from “expected” to “committed.”
Already speaking at the usual press conference after the monetary policy decision was announced, Powell confirmed that inflation is very high and that there is a tendency for inflationary pressures to continue to rise.
The Fed chair said that a 75 basis point increase should not become the norm, but he did not rule out that possibility at the July meeting (pointing to a 50 or 75 point increase at that meeting).
Jerome Powell also stated that after a possible hike in key interest rates also at the upcoming meeting, the Fed funds rate should enter a more normal basis, which will allow central bankers to consider the necessary actions from there.
After about seven years without changing interest rates (it had cut them in December 2008), which remained at historical lows between 0% and 0.25%, the Federal Reserve raised interest rates nine times between the end of 2015 and December 2018.
The Fed made its first increase (by 25 basis points) in December 2015 and then raised the policy rate again by 25 basis points in December 2016. This was followed by three more increases of 25 basis points in 2017 and four more increases in 2018
However, in July 2019, it made its first cut since December 2008. That is, after 10 and a half years, it returned to the policy of stimulating the economy, at a time of slowdown.
Powell had announced that this 25 basis point cut in the federal funds rate in July would not be the start of a long cycle of declines. But in September of that year, interest rates fell again and fell again at the October monetary policy meeting – when they returned to a range between 0% and 0.25%. And so it remained until March of this year, when a new cycle of ascent began.
(news updated at 8:16 pm)
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