In its latest policy, the US Federal Reserve decided on Wednesday to raise key interest rates by only a quarter percentage point in order to continue fighting against high inflation.
Also, the US Fed released its economic forecasts. The US Fed released a statement that highlights the main points.
The US Fed continues to fight inflation by raising interest rates 25 basis points (bps) to 5.15% on May 4, 2023.
The Federal Open Market Committee has decided to increase the range of the Federal Funds Rate from 5 to 5-1/4%.
The U.S. Banking System is Sound and Resilient. The tightening of credit conditions for both households and businesses will likely have a negative impact on the economy, employment, and inflation. These effects are not yet clear. Fed statement: The Committee is still very attentive to inflation risk.
– Reasons behind the increase: “Economic activity expanded at a modest pace in the first quarter. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated.” read the statement.
Committee will continue to reduce its holdings in Treasury Securities, agency debt and agency-backed mortgage-backed securities as described in the plans it announced previously.
The Committee will consider the impact of monetary policies on economic activity, inflation and the time lags between them. It will also take into consideration the economic and financial development.
– If risks arise that may impede the Committee’s objectives, the Committee will be ready to adjust its stance on monetary policy. The Committee will consider a variety of factors in its assessments, such as readings about the labor market, inflation expectations and pressures, and readings about inflation.
Fed continues to plan monthly balance sheet shrinkage of up to $60 billion in Treasury securities and $35 billion in mortgage-backed securities.
Jerome H. Powell (Chair), John C. Williams (Vice Chair), Michael S. Barr, Michelle W. Bowman, Lisa D. Cook, Austan D. Gooplsbee, Patrick Harker, Philip N. Jefferson, Neel Kahkari, Lorie K. Logan, and Christopher J. Waller voted for the monetary action.
Conduct overnight standing repurchase agreements with a bid rate minimum of 5.25 per cent and a maximum operation limit of 500 billion dollars.
-Conduct overnight standing reverse repurchase agreements at a rate of 5.05 % and with a limit per counterparty of $160 billion each day.