US Fed hikes rates by 75bps: The key takeaways

Due to rising inflation, the US Federal Reserve raised interest rates by 75 percentage points. Here are some of the key takeaways from today’s much-anticipated decision:

– The US Federal Reserve raised its benchmark interest rate by 75 basis points – the biggest increase since 1994 – to a range of 1.5%-1.75%. This is in line with the expectations of investors and economists after the inflation data picked up; Kansas City Fed President, Esther George, disagrees in favor of a 50 basis point increase

– New dot projections show strong gains from March, with the federal funds target rising to 3.4% year-end – implying another 175 basis points tightening this year – and 3.8 % in 2023, before falling to 3.4% in 2024; previous forecast in March for 1.9% rate this year and 2.8% in 2023 and 2024

– The FOMC added a line saying it was ‘strongly committed to bringing inflation back to its 2% target’ and removed previous language that said the FOMC ‘expects inflation to return to its 2% target and the labor market The movement will continue to be strong.’

– Economic projections suggest a much softer landing is expected, with the unemployment rate rising from 3.7% at the end of 2022 to 4.1% in 2024; growth forecast cut to 1.7% in 2022 and 2023, from 2.8% and 2.2% in March; Fed officials still expect inflation to drop significantly in 2023

– Fed reiterates roadmap for balance sheet cuts effective June 1 and shrinks bond portfolio to $47.5 billion a month and up to $95 billion by September

U.S. stocks fell and then rebounded in a volatile response to the Federal Reserve’s biggest interest rate hike since 1994 in its quest to beat inflation. The S&P 500 fell briefly after the announcement, then quickly rallied again.

Investments around the world, from bonds to bitcoin, have fallen this year as high inflation forced the Federal Reserve and other central banks to quickly phase out side-backed supports under markets early in the pandemic. It is feared that raising interest rates too sharply will plunge the economy into a recession.

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