U.S. President Biden speaks at the White House on the current state of the U.S. economy and inflationary pressures. Biden said the U.S. government will cut another $1.5 trillion in the federal deficit before the end of the fiscal year , “which would be the largest single-year deficit reduction in U.S. history.” Biden said reducing the deficit and reducing federal government borrowing is one way to ease inflationary pressures.
The Federal Reserve’s FOMC statement shows that it will start to shrink its balance sheet at a monthly pace of $47.5 billion from June 1 ; it will gradually increase the upper limit of the reduction of the balance sheet to $95 billion per month within three months , that is, it will shrink by $60 billion in U.S. Treasuries and $35 billion per month. USD Mortgage-Backed Securities (MBS). It is expected that “continued” rate hikes are appropriate, and inflation risks are “highly attached”; the excess reserve ratio will be raised from 0.4% to 0.9%; the overnight repo rate will be raised from 0.5% to 1%.
This time, the Fed raised the benchmark interest rate by 50 basis points to a range of 0.75%-1.00%, which was the first substantial rate hike by 50 basis points since 2000, in line with market expectations.
Federal Reserve Chairman Jerome Powell said the FOMC sees a 50 basis point rate hike (separately) as a possible option at the next several meetings ; Fed Chairman Powell ruled out a 75 basis point rate hike . The Fed is rapidly raising policy rates to more normal levels, and shrinking the balance sheet will also play an important role; the main focus is on reducing inflation to the 2% target, which has clearly exceeded expectations and is still likely to exceed expectations further; currently For example, the actual pace of reductions in residential mortgage-backed securities will be below the cap. Federal Reserve Chairman Jerome Powell said that inflation is well above target, the Fed understands the difficulty and moved quickly to reduce inflation, and the FOMC has tools to reduce inflation. And said the labor market is very tight and inflation must be lowered to keep the labor market strong. At the same time, the FOMC estimates that the neutral interest rate is between 2% and 3%, which is still a long way from the neutral rate, and will decide how high to raise interest rates when the neutral rate is reached.
FOMC can have a bigger impact on core inflation, supply-side issues have left central banks in limbo, and Fed tools don’t really address supply disruptions; very broad indicators of financial conditions, including bond and credit spreads, are being studied The Fed does not target specific markets in terms of financial conditions. Federal Reserve Chairman Jerome Powell said that economic activity in the United States is expected to remain stable this year, with the economy performing “pretty well” and there is no economic sign that it is close to a recession; some economic activity may slow down with a fiscal ebb. And said that the Fed may need to adjust policy to a tightening level, and if it needs to do so, it will not hesitate; the Fed will do what it can to reduce inflation; supply and demand are balanced, and there is a good economy.
Just after Powell said the central bank would not consider raising interest rates by 75 basis points, the three major indexes jumped to the highs of the day in a short period of time. The Nasdaq rose 3.19%, the S&P 500 rose 2.99%, and the Dow rose 2.82%.
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