[Financial News]
The US Federal Reserve raised interest rates by 0.25 percentage points on the 16th, as expected. In this photo, Federal Reserve Chairman Jerome Powell testifies before the Senate Banking Committee in Washington on the 3rd. AP News
The US Federal Reserve raised its benchmark interest rate by 0.25 percentage points on the 16th, as expected. This is the first rate hike in three years since December 2018.
The Fed also expects to raise rates six more times this year. He suggests that interest rates are likely to rise each time the Federal Open Market Committee meets six times this year.
At the FOMC meeting today, Fed members lowered their forecasts for US economic growth, but raised their forecasts for inflation.
■ Finally raising interest rates
The Federal Reserve raised its target for the federal funds rate, the benchmark interest rate, from 0-0.25% to 0.25-0.50%, a 0.25 percentage point higher. There was no 0.50%p increase expected in some parts of the market.
The Fed also left open the possibility of raising interest rates by 0.25 percentage points each time at the remaining six FOMC meetings this year.
The so-called dot graph, which shows the rate forecasts of the Feds FOMC members, showed the expected base rate level at the end of the year at 1.9%.
The Fed also expects to raise three more next year.
There was only one FOMC voter against the rate hike that day. James Bullard, hawkish, was the governor of the Federal Bank of St. Louis.
Governor Bullard insisted on a 0.50 percentage point increase.
■ Quantitative reduction will also start soon
In a statement after the FOMC, the Fed said: It is expected that it would be reasonable to continuously raise the target range.”
It also hinted that a decision to sell bonds worth nearly $9 trillion will be made soon. This is the so-called quantitative reduction.
In March 2020, the Fed launched a so-called Quantitative Easing (QE) program that freed money from the market through bond purchases with zero interest rates to mitigate the impact on the economy when the United States went into lockdown due to the COVID-19 pandemic. QT is the process of recovering this loose money.
“In addition, the FOMC is expected to decide to start reducing its holdings of government bonds, institutional bonds and institutional housing-backed securities at a future meeting,” the statement said.
■ “Inflationary pressure rise”
According to foreign media such as CNBC and the Financial Times, Federal Reserve Chairman Jerome Powell was concerned about inflation and expected rising inflation at a press conference after the FOMC.
“The Fed is wary of the high risks of inflation and added expected inflationary pressures,” Powell said.
“The U.S. economy is very strong and well-established enough to absorb the harsher monetary policy shocks,” he added.
■ Lower growth forecasts, raise inflation forecasts
The Fed lowered its growth forecast for the US economy and raised its inflation forecast from what it had presented at the FOMC meeting in December last year.
Based on the personal consumption expenditure price index, the Feds preferred price index, the core PCE price index excluding food and energy is expected to rise 4.1% by the end of the year. It was 1.4%p higher than the 2.7% forecast in December last year.
In addition, the core PCE price index is expected to rise 2.6% next year and record a 2.3% increase in 2024. The Fed expects it to fall to around 2% over the long term. The current core PCE price index is at 5.2%, well above the Feds 2% target.
On the other hand, the US GDP growth forecast for this year was downgraded by 1.2 percentage points from 4% in December last year to 2.8% this time. The shock of the Russian invasion of Ukraine was taken into account.
Instead, the growth outlook for next year and beyond has remained unchanged.
In addition, the unemployment rate is expected to stabilize at 3.5% after this year and rise slightly to 3.6% in 2024.
In a statement, the FOMC said it was very uncertain how Russias invasion of Ukraine would affect the US economy, but it was concerned that it would boost inflation and dampen economic activity in the short term.
The stock market reacted negatively after the FOMC decision, but has since recovered and recovered its upward trend.
