“Inflation is much too high and we understand the hardship it is causing and we are moving expeditiously to bring it back down,” Chair Jerome Powell said after the decision in his first in-person press conference since the pandemic began. He added that there was “a broad sense on the committee that additional 50 basis-point increases should be on the table for the next couple of meetings.”
Treasuries and stocks rallied as Powell dashed speculation the Fed was weighing an even larger increase of 75 basis points in the months ahead,saying that it is “not something that the committee is actively considering.”
The S&P 500 closed 3 per cent higher,the Dow Jones surged by 2.8 per cent and the Nasdaq jumped by 3.2 per cent. The Australian sharemarket is set to open higher,with futures at 6.13am AEST pointing to a rise of 39 points,or 0.5 per cent,at the open. The Australian dollar jumped as the greenback weakened. At 6.25am AEST,it is 2.3 per cent higher at 72.61 US cents.
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Wednesday’s increase in the FOMC’s target for the federal funds rate,to a range of 0.75 per cent to 1 per cent,follows a quarter-point hike in March that ended two years of near-zero rates to help cushion the US economy against the initial blow from COVID-19.
Policy makers,who widely signalled their intention to step up the pace of rate increases,are trying to curb the hottest inflation since the early 1980s. Back then,chair Paul Volcker raised rates as high as 20 per cent and crushed both inflation and the broader economy in the process. The Fed’s hope this time around is that the combination of higher borrowing costs and a shrinking balance sheet will deliver a soft landing that avoids recession while tamping down inflation.
Price pressures