US hikes rates by half-percentage point, rules out bigger future rate increases

US hikes rates by half-percentage point, rules out bigger future rate increases
Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., May 3, 2022. REUTERS/Brendan McDermid

The Fed just hiked interest rates the most since 2000, and it has said it’s not done yet. This time around, rates went up by a half-percentage point, which was in line with market expectations. While there are plans to implement similar increases in future meetings, Fed Chairman Jerome Powell said the Fed is not “actively considering” raising rates by three-quarter percentage points as some people thought, which was a relief to the market.

Rates are increasing like this to help fight inflation, which is at a record high (not just in the US but also around the world), but there’s been a mixed response. Some people, like Warren Buffett, think Fed Chair Jerome Powell is a “hero” for his strong-handed approach. Others argue that the hikes in interest rates are leading us closer to a recession. The central bank also outlined a program where it would eventually reduce its bond holdings by US$95 billion a month.

Key comments:

“Inflation is much too high and we understand the hardship it is causing and we are moving expeditiously to bring it back down,” Fed Chair Jerome Powell said in a press conference. He also said 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.”

On the subject of Ukraine, the Federal Reserve released a statement saying, “The implications for the US economy are highly uncertain," adding that, “The invasion and related events are creating additional upward pressure on inflation and are likely to weigh on economic activity."