It’s a bid to tame inflation.
WASHINGTON — The Federal Reserve intensified its fight against the worst inflation in 40 years by raising its benchmark interest rate by a half-percentage point Wednesday — its most aggressive move since 2000 — and signaling further large rate hikes to come.
Speaking at a news conference after the Fed’s latest meeting, Chair Jerome Powell took the unusual step of saying the central bank’s officials understood the financial pain that high inflation is causing ordinary Americans. But Powell stressed that the Fed is sharply raising rates for that very reason — to rein in high inflation, sustain the economy’s health and ease the stress that millions of households are facing.
But he also sought to downplay any speculation that the Fed might be considering a rate hike as high as three-quarters of a percentage point. Starting June 1, the Fed said it would allow up to $48 billion in bonds to mature without replacing them for three months, then shift to $95 billion by September. At September’s pace, its balance sheet would shrink by about $1 trillion a year. The balance sheet more than doubled after the pandemic recession hit as the Fed bought trillions in bonds to try to hold down long-term borrowing rates.
Economists warn that some of the factors fueling inflation — notably, shortages of supplies and workers — are outside the Fed’s ability to solve. Powell has pointed to the widespread availability of jobs as evidence that the labor market is tight “to an unhealthy level” and that fuels inflation. The Fed chair is betting that higher rates can reduce those openings, which would presumably slow wage increases and ease inflationary pressures, without triggering mass layoffs.
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