Fed raises rates by half a point and will start reducing its balance sheet in June

The reduction of the balance sheet will be done in two phases, up to 47.5 billion dollars for three months, then 95 billion dollars. Rate hikes of 75 basis points are not, for the moment, in the intentions of the Fed.

The Fed raises its key rates by half a point, in the range of 0.75% to 1% |  Photo credits: Istock

The Fed raises its key rates by half a point, in the range of 0.75% to 1% | Photo credits: Istock

As expected, the US Federal Reserve raised the rate of its Fed-funds by half a point, now in the range of 0.75% to 1%. The decision was taken unanimously. The balance sheet of the central bank, which exceeds 9,000 billion dollars, will be reduced from this month of June.

The operation will be carried out in two phases: 30 billion dollars of Treasury bills and 17.5 billion dollars of mortgage-backed securities, i.e. 47.5 billion initially, then 95 billion (60 and 35 billion respectively) after a period of three months.

Despite the contraction in gross domestic product (GDP) observed in the first quarter, โ€œ household spending and business investment remain strong. Job growth has been robust โ€œ, declares the monetary policy committee in its press release.

Inflation” stay high and war in Ukraine as new lockdowns in China threaten to fuel upward pressure on prices, he adds, noting that ” the committee pays close attention to inflationary risks “.

What changed in the release of this month of May.

During his press conference, Federal Reserve Chairman Jerome Powell said central bank officials were not considering ” actively ยป raise key interest rates by 75 basis points at future monetary policy meetings. ” A 75 basis point rate hike is not something the committee is actively considering โ€œ, he said more precisely, in response to a question on the subject.

DL, with Reuters

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