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Federal Reserve raises interest rates by 50 basis points
By Yashasvini Razdan - May 04, 2022, 09:14 PM ET
Last Updated - Feb 26, 2024, 09:02 AM EST
US Federal Reserve raised the short-term benchmark interest rate by half a percentage point or 50 basis points on Wednesday
• The interest rate will now range between 0.75%-1%
The US Federal Reserve raised the short-term benchmark interest rate by half a percentage point or 50 basis points on Wednesday.
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The central bank also announced its plans to shrink its $9 trillion asset portfolio starting next month in to reduce inflation that has grown at the fastest pace since January 1982.
The Federal Open Market Committee’s (FOMC) decision will now throw the rate between a range of 0.75% and 1%. The last time, the Fed raised the interest rate by half a percentage point was in 2000.
Balance sheet reduction
The Fed’s plan outlined that the balance sheet reduction will happen in phases as the Fed will allow a capped level of proceeds from maturing bonds to roll off each month while reinvesting the rest.
From June 1, the plan will see $30 billion of Treasurys and $17.5 billion on mortgage-backed securities (MBS) roll-off. After three months, the cap for Treasurys will increase to $60 billion and $35 billion for mortgages.
Federal Reserve Chair Jerome Powell said in his opening statement that the economy has been resilient in the past two years. “The American economy is very strong and well-positioned to handle tighter monetary policy,” he said, adding that he foresees a “soft or softish” landing for the economy despite the tightening.
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Source: Federal Reserve
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