Washington, May 4, 2022 (AFP) – The Federal Reserve (Fed, US central bank) on Wednesday (4) raised its benchmark interest rates by half a percentage point, the first increase of this magnitude since 2000, to try to control a record inflation, and highlighted that new highs “will be justified” in the future.
Rates were thus between 0.75% and 1%, according to an official statement issued at the end of a two-day meeting of the Fed’s Monetary Policy Committee (FOMC).
In addition, the body will begin to reduce its assets in bonds from June 1 and has warned that the war in Ukraine and the lockdowns in China exacerbate inflation.
According to Fed Chairman Jerome Powell, a 0.75 percentage point increase in basic interest rates “is not considered firmly” for the time being by the US central bank.
Powell also said there was “a good chance” that rising interest rates would not push the economy into a recession or cause unemployment to rise if “economic and financial conditions evolve in a manner consistent” with the central bank’s expectations.
The Fed continues to believe that inflation will gradually return to the 2% target set by the body as the cost of credit rises, but it will remain “very attentive to inflationary risks”.
The FOMC also noted the “highly uncertain” impact of external factors, including the Russian invasion of Ukraine, which is “creating additional pressure on inflation and will weigh on economic activity”.
The lockdowns in China to combat covid-19 “will likely increase disruptions to supply networks”, he added.
The reduction of its assets will mean releasing from June 1st of 47.5 billion dollars in bonds and bonds per month to double the number after three months.
The Fed has accumulated $9 trillion in Treasury bonds and other securities among its assets as a way to inject liquidity into the financial system during the pandemic.
