Having raised the federal funds rate by 0.25 percentage points in March – its first rate increase for two years – the US Federal Reserve intensified its tightening action at its April meeting, raising its key interest rate by 0.5 percentage points.
- The FOMC raised its key federal funds rate by 0.50 percentage points to a range of 0.75%-1%
- US inflation surged to 8.5% YoY in March
- The Fed will start to reduce its US$9 trillion balance sheet from June
Having raised the federal funds rate by 0.25 percentage points in March – its first rate increase for two years – the US Federal Reserve (Fed) intensified its tightening action at its April meeting, raising its key interest rate by 0.5 percentage points to a target range of 0.75% to 1%. The move was designed to address the ongoing issue of surging inflation: the annualised rate of US consumer price inflation soared to 8.5% in March, hitting a level last seen over 40 years ago in December 1981, whereas the Fed’s target inflation rate stands at 2%. Further rate increases remain on the cards during the rest of 2022: the Fed expects the federal funds rate to hit almost 2% by the end of the year.
“The Fed expects the federal funds rate to hit almost 2% by the end of the year”
The nine-strong Federal Open Market Committee (FOMC) voted unanimously for the increase. The Fed will also begin to reduce the size of its US$9 trillion balance sheet from 1 June, cutting it at a monthly rate of US$47.5 billion for three months, after which it will increase to US$95 billion.
Fed Chair Jerome Powell acknowledged the “hardship” caused by the rising cost of living and said that the central bank was “moving expeditiously to bring it back down”. The US economy unexpectedly shrank by 1.4% year on year during the first quarter, but Chair Powell rejected the prospect of recession, highlighting continued strength in the country’s labour market, alongside robust business investment and consumer spending.
