Federal Reserve Bank Raises Interest Rates, Ratchets Up Inflation Fight

The Federal Reserve Wednesday raised its benchmark interest rate by a half point for the first time in two decades as policymakers intensify their fight to cool red-hot inflation, a move that threatens to slow U.S. economic growth and exacerbate financial pressure on Americans.

The 50-basis point hike — a widely anticipated move — puts the key benchmark federal funds rate at a range between 0.75% to 1.0%, the highest since the pandemic began two years ago.

The Fed also announced it will start reducing its massive $9 trillion balance sheet, which nearly doubled in size during the pandemic as the central bank bought mortgage-backed securities and other Treasury’s to keep borrowing cheap. In a plan outlined Wednesday, the Fed indicated it will begin winding down the balance sheet June 1 at an initial combined monthly pace of $47.5 billion, a move that will further tighten credit for U.S. households. It will increase the run-off rate to $95 billion over three months.

Collectively, the steps mark the most aggressive tightening of monetary policy in decades as the Fed races to catch up with inflation, which hit a fresh 40-year high in March.

“Inflation is much too high,” Fed Chairman Jerome Powell told reporters at a post-meeting news conference. “We understand the hardship it is causing, and we’re moving expeditiously to bring it back down. We have both the tools we need and the resolve that it will take to restore price stability on behalf of American families and businesses.”