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US Fed raises key interest rate by a half-point as markets take forward outlook positively

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US Fed raises key interest rate by a half-point as markets take forward outlook positively


The US Federal Reserve has intensified its fight against inflation by raising its benchmark interest rate by 50 bps — its most aggressive move since 2000.

The US Federal Reserve intensified its fight against the worst inflation in 40 years by raising its benchmark interest rate by a half-percentage point — its most aggressive move since 2000 — and signalling further large rate hikes to come.
Another well-telegraphed action was the announcement of the start of balance sheet reduction, effective at the beginning of June.
Powell guides against 75 bps hike
The markets have found some breathing space s a 75 basis points (bps) hike has been ruled out by the US Federal Reserve. Fed Chair Jerome Powell ruled out expectations for a 75 bps hike anytime soon and in his prepared remarks said, “There is a broad sense on the committee that additional 50 bps increases should be on the table at the next couple of meetings."
“A (three-quarters of a point) hike is not something that the committee is actively considering,” he added — a remark that caused stock indexes to jump. Before he spoke, the Dow Jones Industrial Average was up only modestly. By the close of trading, the Dow had soared 930 points, or 2.8 percent — its best single-day gain since May 2020
Fed statement had few surprises
The statement had really no surprises as well. The vote for a 50 bps hike was unanimous. Only a few changes to the economic discussion. The forward guidance on rates was unchanged.
The press conference
At several points, Jerome Powell spoke approvingly of the tightening of financial conditions. The overall tone of his remarks was hawkish. For example, he said, “Inflation is much too high" and the Fed has the tools and the resolve to bring it lower. He spoke about the tight labour market as being a focus and about taking the policy to a neutral zone quickly.
The market rally
The strong market rally on Wall Street and then subsequently positive opening in Asia were based almost exclusively on Powell's comments that the Fed was only considering a 50 bps hike going ahead.
Watch the accompanying video of CNBC-TV18’s Prashant Nair for more details.
With inputs from AP
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