In an effort to return elevated inflation to its 2 percent objective, the Federal Reserve on Wednesday announced its widely expected decision to raise interest rates by half a percentage point.
The Fed announced that it has decided to raise the target range for the federal funds rate by 50 basis points to 0.75 to 1.0 percent and said it anticipates that ongoing increases in the target range will be appropriate.
In addition, the Fed decided to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities on June 1.
The widely expected decision to raise interest rates came even though the Fed acknowledged that overall U.S. economy activity edged down in the first quarter.
The central bank noted that household spending and business fixed investment have remained strong, while job gains have been robust.
The Fed said inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.
Describing the economic implications of Russia’s invasion of Ukraine as “highly uncertain,” the Fed said the invasion and related events are creating additional upward pressure on inflation and are likely to weigh on economic activity.
The Fed said COVID-related lockdowns in China are likely to exacerbate supply chain disruptions and noted that it is “highly attentive to inflation risks.”
A separate statement from the Fed revealed the central bank intends to reduce its securities holdings over time in a predictable manner primarily by adjusting the amounts reinvested of principal payments received from securities held in the System Open Market Account (SOMA).
Beginning on June 1, principal payments from securities held in the SOMA will be reinvested to the extent that they exceed monthly caps, the Fed said.
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