The U.S. central bank (Fed) raised its key rates by half a percentage point on Wednesday, the first hike of this magnitude since 2000, in an attempt to control record inflation and signaled that further hikes “would be justified” in the future.
Key rates are now in a range of 0.75% and 1%, according to a press release.
In addition, the Federal Reserve will begin to reduce its balance sheet from June 1, another monetary tightening tool to temper inflationary pressure.
Finally, she warns that the war in Ukraine and the confinements in China will aggravate inflation and logistics problems.
The rate hike was passed unanimously by the Monetary Policy Committee (FOMC).
Fed members continue to believe that inflation will gradually return to the Fed’s 2% target as it raises the cost of credit, but insists it will be particularly pay attention to inflation.
The Committee also underlined the highly uncertain impact of external factors, such as Russia’s invasion of Ukraine, which is creating additional upward pressure on inflation and could weigh on economic activity.
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In addition, lockdowns due to the Covid-19 outbreak in China are likely to exacerbate supply chain disruptions, the Monetary Committee statement said.
The central bank, which has accumulated 9 trillion in Treasury bills and other securities in its assets by pouring liquidities into the financial system to support the economy during the pandemic, will begin to reverse course.
The balance sheet of the Fed will begin to be reduced at the rate of 47.5 billion dollars per month from June 1 and up to 90 billion after three months, another way to increase the cost of credit to temper demand and price increases.