The Federal Reserve Raised Intrest Rates By Another 75 Basis Points, The Most Radical Tightening Action Since 1980s
The Federal Open Market Committee (FOMC) announced its latest interest rate resolution on Wednesday local time, raising the benchmark interest rate by 75 basis points to the range of 2.25% to 2.50%, in line with market expectations. This made the cumulative interest rate increase from June to July reach 150 basis points, the largest since Paul Volcker took charge of the Federal Reserve in the early 1980s.
The FOMC statement said that the members passed the interest rate decision with a 12-0. It also said that the high inflation rate in the U.S. reflects the imbalance between supply and demand related to the epidemic as well as the price pressure of food, energy, and broader commodities. The committee is highly concerned about inflation risks and is firmly committed to returning inflation to its target of 2%.
The statement reiterated that the FOMC "expects that it will be appropriate to continue to raise the target range". If risks may hinder the achievement of the inflation target, the Federal Reserve will adjust its policy.
The Fed also warned that although employment growth in the United States was strong, recent spending and production indicators had weakened.
The statement said that the monthly reduction limit of mortgage-backed securities (MBS) would rise to $35billion and the monthly reduction limit of treasury bonds would rise to $60billion as planned in September.
The Fed also reiterated the impact of the conflict between Russia and Ukraine on the economy, saying that conflict related events are creating new upward pressure on inflation and dragging down global economic activities.
Facing the external criticism that he was slow to respond to price rises last year, Powell is trying to contain the hottest inflation in 40 years, causing financial markets plunge into turmoil. And investors are worried that the Fed's interest rate hike may trigger an economic recession.
Investors are now concerned about whether the Federal Reserve will slow down the rate of interest rate hike at its next meeting in September, or whether the strong upward pressure on prices will force the Federal Reserve to continue to raise interest rates with extraordinary efforts. After the announcement of the statement, CME "Fed Watch" showed that the probability of the Fed raising interest rates to 2.5% - 2.75% by September was 0%, the probability of raising interest rates to 2.75% - 3.0% was 45.7%, the probability of raising interest rates to 3.0% - 3.25% was 47.2%, and the probability of raising interest rates to 3.25% - 3.5% was 7.1%.
