Fed Raises Key Rate By Half Percentage Point – The Biggest Hike in Two Decades

    The Federal Reserve raised the short-term interest rate by a half-percentage point on Wednesday. The increase in the rate raised it to a range of .75% to 1%.

    According to the statement released on Wednesday, “Although overall economic activity edged down in the first quarter, household spending and business fixed investment remained strong. Job gains have been robust in recent months, and the unemployment rate has declined substantially. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.”

    While this is the highest point since pre-pandemic, the statement indicated further large rate hikes will likely come. “The invasion of Ukraine by Russia is causing tremendous human and economic hardship. The implications for the U.S. economy are highly uncertain. The invasion and related events are creating additional upward pressure on inflation and are likely to weigh on economic activity. In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions.”

    The Fed noted that The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run. “With appropriate firming in the stance of monetary policy, the Committee expects inflation to return to its 2 percent objective and the labor market to remain strong. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 3/4 to 1 percent and anticipates that ongoing increases in the target range will be appropriate.” The Committee will also begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities on June 1, 2022.