China News Agency, New York, May 4 (Reporter Wang Fan) The US Federal Reserve announced on the 4th that it will raise the target range of the federal funds rate by 50 basis points to a level of 0.75% to 1%, which is in line with market expectations.
This is the largest rate hike by the Fed since 2000.
Overall U.S. economic activity declined in the first quarter, but household spending and business fixed investment remained strong, the Fed said in a statement after its two-day monetary policy meeting.
In recent months, U.S. employment has grown strongly and the unemployment rate has fallen sharply.
Inflation remains elevated, reflecting supply and demand imbalances related to the coronavirus pandemic, rising energy prices and broader price pressures.
In addition, events such as the Russia-Ukraine conflict are bringing additional upward pressure on inflation.
The Fed places high priority on inflation risks and seeks to achieve its goals of full employment and a longer-term inflation rate of 2 percent, the statement said.
By appropriately tightening its monetary policy stance, the Fed expects inflation to fall back to 2% while the labor market remains strong.
In support of these goals, the Fed decided to raise the target range for the federal funds rate to between 0.75% and 1%, with the expectation that further increases in that target range would be appropriate.
On the same day, the Fed also released the "Plan to Reduce the Size of the Fed's Balance Sheet".
The plan says the Fed will "shrink its balance sheet" at a monthly pace of $47.5 billion starting June 1 and gradually increase the cap to $95 billion per month after three months of "shrinking". Reduced assets in U.S. Treasuries by $60 billion and agency bonds and agency mortgage-backed securities by $35 billion.
Fed's interim chairman Jerome Powell said at a press conference after the regular monetary policy meeting that the Fed's top priority now is to reduce inflation.
When asked about the rate hike in the next few months, Powell said a single 50 basis point rate hike would be one of the options for future monetary policy meetings, but a single 75 basis point rate hike has not been actively considered by the Fed options.
He also emphasized that the Fed will raise interest rates to a reasonable neutral level, and "if higher interest rates are needed, we will not hesitate."
The US financial media CNBC reported that this is the first time the Fed has raised interest rates by 50 basis points since 2000, in order to control inflation, which has hit a 40-year high as soon as possible.
Powell's forecast for a neutral rate of between 2% and 3% this time, and stressed that the U.S. economy may still achieve a soft landing, eased investor nervousness to a certain extent.
After Powell's speech, the three major U.S. stock market indexes rose significantly.
As of the close of the day, the Dow Jones Industrial Average rose 932.27 points, or 2.81%, to close at 34061.06; the Nasdaq Composite rose 401.10 points, or 3.19%, to close at 12964.86; the Standard & Poor's 500 stock index rose 124.69 points, or 2.99%, to close at 4300.17.
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