The US Federal Reserve Board announced on the 2nd that it will raise the target range of the federal funds rate by 75 basis points to 3.75% to 4%, which is in line with market expectations. This is the fourth consecutive 75 basis point rate hike by the Fed.

'Recent indicators point to moderate growth in spending and production, strong job growth in recent months and a low unemployment rate,' the Fed said in a statement after a two-day policy meeting. Inflation remains elevated, reflecting supply-demand imbalances associated with the coronavirus pandemic, higher food and energy prices, and broader price pressures. Moreover, related events such as the Russia-Ukraine conflict are putting additional upward pressure on inflation and weighing on the global economy.

'The Fed attaches great importance to inflation risks and seeks to achieve its objectives of full employment and 2% inflation over the longer run,' the statement said. In support of these objectives, the Federal Reserve decided to raise the target range for the federal funds rate to between 3.75% and 4%, with the expectation that such sustained increases would be appropriate to create a sufficiently restrictive stance of monetary policy to return inflation to 2% over time. Moreover, the Fed will continue to reduce the size of its balance sheet.

In determining the extent of future rate increases, the Fed will take into account the cumulative tightening of monetary policy, the lag in how monetary policy affects economic activity and inflation, and developments in economic and financial conditions.

Federal Reserve Chairman Jerome Powell said at a press conference after the regular monetary policy meeting that it was too early to consider a pause in interest rate hikes, and the current round of terminal interest rates may be higher than previously estimated. Powell also noted that it would be appropriate to slow the pace of rate hikes "at some point in the future," and "that point is coming up, probably the next monetary policy meeting or the meeting after that." He stressed that the United States is not currently in a recession, but the likelihood of a soft landing is shrinking.

As Powell spoke, the three major U.S. stock indexes turned from gains to losses. The Dow Jones industrial Average fell 505.44 points, or 1.55 percent, to 32,147.76. The Nasdaq Composite Index fell 366.05 points, or 3.36 percent, to 10,524.80. The Standard & Poor's 500-stock index fell 96.41 points, or 2.50 percent, to 3,759.69.

The Wall Street Journal quoted analysts as saying that Powell's remarks were still regarded as hawkish, and his remarks that there would be no turning point in the path of interest rate hikes and that the terminal interest rate would be higher than previously expected made investors once again worried about the economic outlook. The Fed is tightening policy more aggressively than at any time since the 1980s to rein in inflation, Bloomberg said, adding in its statement an emphasis on raising rates to sufficiently restrictive levels, suggesting the current round of rate hikes could be more protracted than previously thought.

Source: Chinanews.com