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Fed’s 75bp hike: first in 28 years – Last Minute Economic News

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Latest news! United States Federal Reserve (Powered), raised the official rate by 75 basis points, bringing it to 1.50-1.75 per cent.

Therefore, the Fed achieved the strongest rate hike since 1994.

In the text of the resolution, the Fed stressed that it has a strong commitment to return to the 2 percent inflation target.

THE DECISION WAS TAKEN 10 VOTES AGAINST 1

The Fed statement states that the decision to raise the interest rate was made by 10 to 1 votes and Kansas City Fed Chairman Esther George voted to raise it by 50 basis points.

Pointing out that the Federal Open Market Committee (FOMC) aims to achieve maximum employment and 2% inflation over the long term, it was reported that it was decided to raise the Federal Funds Rate in the 1.50-1.75 range. % to support these goals, and it was estimated that continued increases would be appropriate.

The 75 basis point hike, decided by the bank at its June meeting, was the fastest rate hike since 1994.

ACCELERATED INFLATION INCREASED THE PRESSURE ON THE FED

In the final quarter of 2021, the tone of the Fed’s monetary policy began to change with the high inflationary pressure that came with the rapid economic recovery following the new-type coronavirus (Covid-19) outbreak in the United States.

The Fed, which began slowing the pace of asset purchases with its November meeting last year, completed its asset purchase transaction in March and began raising interest rates. While the Bank decided to raise interest rates for the first time since 2018 with a 25 basis point hike at its March meeting, it had achieved the fastest rate hike since 2000 with 50 basis points at its May meeting.

In June, the Fed began its balance sheet shrinkage, which is another step in the normalization of post-pandemic policy.

Inflation, which has continued its upward trend with the effect of the Russia-Ukraine war and policies aimed at controlling the Covid-19 epidemic triggered by the Omicron variant in China, has increased problems in the supply chain, has further increased pressure on the Fed.

Inflation in the United States hit 8.6% in May, the highest level since December 1981.

Following the two-day Federal Open Market Committee (FOMC) meeting, the Fed said in a statement that overall economic activity appeared to have rebounded after the first quarter decline.

In the statement, it is stated that employment gains have been strong in recent months and the unemployment rate remains low.

Noting that inflation remains high, reflecting epidemic-related supply and demand imbalances, rising energy prices and wider price pressures, Russia’s attack on Ukraine has caused enormous difficulties. humanitarian and economic.

In the statement, it was emphasized that war and related events put further upward pressure on inflation and put pressure on global economic activity.

IT WAS STRESSED TO BE EXTREMELY CAREFUL AGAINST INFLATION RISKS

Pointing out that quarantine measures taken against the Covid-19 outbreak in China could also worsen supply chain disruptions, it was said that the Committee is very cautious of inflation risks.

The statement said that in addition to the 75 basis point interest rate hike, the Committee will continue to reduce its Treasury and mortgage-backed securities in line with the budget reduction plan announced in May.

In the statement, which states that the committee is determined to reduce inflation to the 2% target, it reiterates that while assessing the appropriate stance of monetary policy, the effects of information on the economic outlook will continue to be monitored. .

In the statement, it is noted that the Committee will be ready to appropriately adjust the monetary policy stance should risks arise that could prevent the Committee from achieving its objectives.

THE ESTIMATE OF INFLATION INCREASES, GROWTH EXPECTATIONS LAUGH

By announcing its forecast for the economy, the Fed raised its inflation forecast for this year while lowered its growth expectations.

According to the Fed’s forecasts, inflation forecast for this year has been increased to 5.2 percent from 4.3 percent. Inflation forecasts have been reduced from 2.7% to 2.6% for 2023 and from 2.3% to 2.2% for 2024.

Forecasts for core inflation, which excludes variable energy and food prices, were also raised from 4.1% to 4.3% for this year and from 2.6% to 2.7%. for 2023, while at 2.3% for 2024 they remained.

The US economy growth forecast for this year has been reduced from 2.8% to 1.7%. The country’s economy growth forecast for 2023 was also reduced from 2.2% to 1.7%, and the expectation for 2024 was reduced from 2% to 1.9%. The long-term growth expectation for the US economy was kept at 1.8%.

The forecasts for the unemployment rate also rise from 3.5% to 3.7% this year, from 3.5% to 3.9% for 2023 and from 3.6% to 4.1. % for 2024. increase.

The median expectation for the funding rate was increased from 1.9% to 3.4% for 2022, from 2.8% to 3.8% for 2023 and from 2.8% to 3.4 % for 2024.. The long-term average interest rate expectation was increased from 2.4% to 2.5%.

Recovering from the Covid-19 crisis, the US economy grew 5.7% last year, the strongest since 1984.

“WE CAN INCREASE ANOTHER 75 BASE POINTS IN JULY”

Fed Chairman Jerome Powell said in a statement after the decision: “A 50 or 75 basis point hike is likely at our next meeting.”

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