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The FED Approves Half Point Interest Rate Rise

The FED Approves Half Point Interest Rate Rise

May 05, 2022
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The FED Approves Half Point Interest Rate Rise 

The Federal Reserve approved a rare half-percentage-point interest rate increase and announced plans to shrink its $9 trillion asset portfolio starting next month in a double-barreled effort to reduce inflation that is running at a four-decade high. 

The moves, announced after a two-day policy meeting Wednesday, will raise the central bank’s benchmark federal-funds rate to a target range between 0.75% and 1%.

 Together, the steps mark the most aggressive Fed tightening of monetary policy at one meeting in decades, aimed at rapidly reducing the economic stimulus that has contributed to rising price pressures. The Fed, which usually lifts interest rates in quarter-percentage-point increments, last raised rates by a half point in 2000.

The rate-setting Federal Open Market Committee approved the decision unanimously. In a statement, the committee said it “anticipates that ongoing increases in the target range will be appropriate,” setting the stage for another large rate rise at the Fed’s meeting next month.

The statement cited the potential for Covid-related disruptions in China to sow further chaos to global supply chains that could keep inflation elevated. “The Committee is highly attentive to inflation risks,” it said.

Fed officials also finalized plans to start shrinking their mammoth holdings of Treasury and mortgage securities passively–that is, by allowing bonds to mature without reinvesting the proceeds into new securities rather than by selling them in the open market.

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