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The Fed raises interest rates by a half-point in an effort to reduce asset holdings

Updated: Apr 6, 2023

The Fed raises interest rates by a half-point in an effort to reduce asset holdings and curb inflation.

Russia's invasion of Ukraine is creating enormous human and economic hardship, and the consequences for the US economy are quite unpredictable. The invasion and accompanying events are adding to inflationary pressures and are likely to weigh on economic growth. Furthermore, COVID-related supply chain disruptions in China are likely to exacerbate, and the Committee is very concerned about inflationary risks.

Over the long run, the Committee aims to attain maximum employment and inflation of 2%. With an appropriate tightening of monetary policy, the Committee expects inflation to return to its 2% target and the labor market to remain solid. In support of these objectives, the Committee voted unanimously to raise the target range for the federal funds rate to 3/4 to 1%, with the expectation that future increases will be appropriate.

Furthermore, the Committee decided to begin lowering its holdings of Treasury securities, agency mortgage-backed securities, and agency debt at its upcoming June 1 meeting. The plan is to reduce the Federal Reserve's Balance Sheet Size, which was announced concurrently with this statement.

While economic growth as a whole slowed slightly in the first quarter, household expenditure and business fixed investment remained robust. Recent months have seen considerable job growth and a significant reduction in the unemployment rate. Inflation continues to be elevated, owing to supply and demand mismatches caused by the pandemic, increased energy prices, and broader pricing pressures.

The Committee would be prepared to change the stance of monetary policy as necessary if risks materialized that would jeopardize the Committee's objectives.

Following the rate decision, stocks and Treasuries fluctuated.

The FOMC's next meeting is set for June 15, 2022.

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