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The Fed Aims for Tighter Monetary Policy with 50 Base Points Rate Hike.

In: Finance, Forex

Powell told a press conference: “The American economy is very strong and well positioned to handle tighter monetary policy.”

Fed officials said they see inflation significantly higher than previously forecast, at 4.3% this year, but still coming down to 2.3% in 2024. The forecast for economic growth in 2022 was lowered to 2.8% from 4%, while unemployment projections were little changed. The Fed raised interest rates by a quarter percentage point and signaled six more such hikes this year, launching a campaign to tackle the fastest inflation in four decades even as risks to economic growth accumulate.

Policy makers led by Jerome Powell voted 8-1 to lift their key rate to a target range of 0.25% to 0.5%, the first increase since 2018, after two years of holding borrowing costs near zero to insulate the economy from the pandemic. St. Louis Fed President James Bullard dissented in favor of a half-point hike, the first vote against a decision since September 2020.

The Fed Chair Jerome Powell said that officials could move faster on policy tightening if needed. He also added: “we are attentive to the risks of further upward pressure on inflation and inflation expectations.”

“I saw a committee that is acutely aware of the need to return the economy to price stability,” he told reporters, characterizing the mood around the table as policy makers debated the outlook. The hike is likely the first of several to come this year, as the Fed said it “anticipates that ongoing increases in the target range will be appropriate,”

The statement from the Fed omitted previous language saying that the economy’s path depended on the course of the coronavirus, though it kept a reference to the pandemic’s impact on inflation. The Fed said it would begin allowing its $8.9 trillion balance sheet to shrink at a coming meeting without elaborating, though Powell told reporters that officials had made good progress this week in nailing down their plans. The purchases of Treasuries and mortgage-backed securities, which concluded this month, were intended to provide support to the economy during the Covid-19 crisis and shrinking the balance sheet accelerates the removal of that aid.

The Fed officials’ median projection was for the benchmark rate to end 2022 at about 1.9% — in line with traders’ bets but higher than previously anticipated — and then rise to about 2.8% in 2023. They estimated a 2.8% rate in 2024, the final year of the forecasts, which are subject to even more uncertainty than usual given Russia’s invasion of Ukraine and new Covid-19 lockdowns in China are buffeting the global economy.

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