The Fed hikes rates to fight surging inflation

The Fed hikes rates to fight surging inflation
FILE PHOTO: The Federal Reserve building is seen in Washington, U.S., January 26, 2022. REUTERS/Joshua Roberts

In the most aggressive rate hike since the 90s, the Fed in the US officially raised interest rates on the dollar by 75 basis points, or 0.75 percentage points, on Wednesday in order to grapple with the rising rate of inflation around the world and in the US. Critics have hit the Fed for not predicting the jump in price gains and said it reacted too slowly to the problem. So now, the Fed is tasked with finding the delicate balance between curbing inflation and causing a recession. But Fed Chair Jerome Powell said it is possible for the central bank to achieve a “soft landing” – which would do just that. And as Powell answered questions at the press briefing, stocks and bonds rallied, ending a five-day losing streak that had left the index in bear territory.

Key comments:

“Clearly, today’s 75 basis-point increase is an unusually large one and I do not expect moves of this size to be common,” said Fed Chairman Jerome Powell at a post-meeting press conference, adding that the Fed will “continue to communicate our intentions as clearly as we can.”

“As for what investors should do in volatile times, I think Warren Buffett has the best advice,” said Robert Johnson, a professor of finance at Creighton University in Omaha, Nebraska. Buffett “recommends investors ‘re-watch their favorite Super Bowl commercials, get ice cream with their kids and say hi to a friend they haven’t spoken with in a while.’” The moral of the story, he said, is that “Investors should not concern themselves with broad market moves or the crisis de jour.”