The Federal Reserve is expected to raise interest rates by half a percentage point this afternoon, as the central bank’s firefight with high inflation continues.
Fed officials see the case for “expeditiously” moving interest rates higher over the course of this year. The Fed is currently targeting short-term interest rates within a range of 0.25% to 0.50%, but some Fed officials estimate that rates will have to be somewhere closer to at least 2.5% to quell inflation.
That has spurred the Fed into more aggressive interest rate moves. In the last two decades, the Fed never raised interest rates in increments larger than 0.25%, but Fed Chairman Jerome Powell said April 21 that an outsized rate increase of 0.50% “will be on the table.”
The central bank is also expected to announce a strategy to undo at least some of the trillions in asset purchases it made since the beginning of the pandemic. Up until March, the Fed was absorbing U.S. Treasuries and agency mortgage-backed securities to message its support to financial markets.
Preliminary discussions held by the Fed in March suggested that policymakers favored a plan to allow maturing securities to essentially roll off of its balance sheet. The proposal would allow its asset holdings to shrink at a pace of up to $95 billion a month.
Final details on that plan are expected in today’s meeting.
The policy statement is due at 2 p.m. ET alongside a press conference from Powell at 2:30 p.m. ET.
Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.
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