May 4, 2022
Today the Federal Reserve Open Market Committee (FOMC) announced a rare half-percentage-point interest rate increase and simultaneously announced plans to shrink its $9 trillion asset portfolio (balance sheet) starting next month in a double-barreled effort to reduce inflation that is running at a four-decade high. Today’s rate hike raised the central bank’s benchmark federal-funds rate to a target range between 0.75% and 1%. The Fed, which usually lifts interest rates in quarter-percentage-point increments, last raised rates by a half point in 2000.
Taken together, the aggressive rate hike combined with reducing their bond holdings marks the most aggressive FOMC tightening using monetary policy at one meeting in decades.
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