by Howard Schneider and Ann Saphir
WASHINGTON (Reuters) – The U.S. Federal Reserve (Fed) on Wednesday raised its main interest rate by half a point, its biggest hike in nearly 22 years, and said it would start trimming its balance sheet next month. next year, thus accelerating the tightening of its monetary policy in the face of inflation.
The rate target for federal funds (“fed funds”), the Fed’s main monetary policy instrument, is raised to between 0.75% and 1%, as expected by all economists and analysts polled by Reuters before the meeting of the Federal Open Market Committee (FOMC).
This decision was taken unanimously.
Despite the contraction in US gross domestic product (GDP) in the first quarter, “household spending and business investment remain strong. Job growth has been robust,” says the US Monetary Policy Committee. the US central bank in a statement issued after two days of debate in Washington.
Inflation ‘remains high’ and war in Ukraine and new lockdowns in China threaten to fuel upward pressure on prices, he adds, noting that ‘Committee is very attentive to inflationary risks’ .
The press release specifies that the balance sheet of the Fed, which has increased sharply in recent years to nearly 9,000 billion dollars (8,530 billion euros) due to the massive bond purchases it has undertaken to maintain low rates and support the economy, may decrease by a maximum of 47.5 billion per month in June, July and August, then by 95 billion per month from September.
Fed Chairman Jerome Powell is due to comment on these decisions and economic developments at a press conference from 6:30 p.m. GMT.
On the markets, the yield on ten-year Treasury bonds slightly reduced its progression to 2.9793% a few minutes after the Fed’s announcements, against 2.985% just before. On Wall Street, the Standard & Poor’s 500 index gained 0.45% at the same time, while on the foreign exchange market, the dollar lost ground against other major currencies (-0.21%).
The Fed had raised the target for “fed funds” by a quarter of a point in mid-March despite the wish of several FOMC members for a larger increase, the majority having favored caution, only three weeks after the invasion of Ukraine by Russia.
Inflation has since picked up again as the war sparked by Moscow sent energy and food prices skyrocketing, while the return to lockdowns in several parts of China to combat the resurgence of the COVID outbreak -19 was once again disrupting global supply chains.
At the same time, employment statistics in the United States reflected tensions in the labor market, with the shortage of labor favoring wage increases.
(Report Howard Schneider and Ann Saphir, French version Marc Angrand, edited by Jean Terzian)