Fed raises interest rates by 0.50%, largest move since 2000

[progree]

to a target range of 0.75 - 1.00 percent

Some Fed officials are advocating for raising the target closer to 2.5% by the end of the year.

The Fed also officially unveiled a strategy to shrink its asset holdings, after buying trillions of dollars in U.S. Treasuries and agency mortgage-backed securities to contain COVID’s impact on financial markets.

The central bank announced Wednesday that beginning June 1, it will allow up to $47.5 billion a month — $30 billion in U.S. Treasuries and $17.5 billion in mortgage-backed securities — to roll off its balance sheet. That pace will hold from June through August until September, when the Fed ramps that cap up to $95 billion ($60 billion in U.S. Treasuries and $35 billion in mortgage-backed securities).

The Fed hopes the process will allow it to reduce its $9 trillion in holdings, although the central bank has not clarified how small it will allow its balance sheet to shrink. ((at the pace of $95/billion a month, one year of that would reduce holdings by $1.14 Trillion --Progree))

The Fed’s next meeting will take place June 14 and 15.

More: https://finance.yahoo.com/news/fed-fomc-monetary-policy-decision-may-2022-142723148.html

Compare conditions to the last time rates were raised by 0.50 percentage points in one gulp

https://finance.yahoo.com/news/the-fed-is-about-to-do-something-it-has-not-done-in-two-decades-morning-brief-100029366.html

In the face of “inflationary imbalances,” the Fed led by Alan Greenspan raised interest rates by 0.50% to a target of 6.5%. ((in May 2000)). That would be the last time the Fed would ever raise interest rates by that much in one move, opting instead to 0.25% increases at a time. ((Update: until today, 5/4/22 -Progree))

... measures of inflation (personal consumption expenditures) were showing prices rising annually by 2.4% in May 2000

ETA There's quite a lot of info in the comments to the LBN story, Fed hikes rates by half a percentage point in fight against inflation

[questionseverything]

1. "Plant your gardens deep "

Between inflation

The necessary rate increases to fight inflation

The supply chain issues

The war in the middle of the world’s breadbasket

Things are going to get lean

[TheRealNorth]

2. I have concerns that this could actually make inflation worse....

Because I think inflation is mostly being driven by scarcity d/t supply chain, production disruption d/t Covid, war, and labor scarcity; and increased labor costs. Making borrowing more costly could hinder increasing production.

Maybe my economic analysis is off - I am not an economist. But I don't see this inflation being caused by there being too much money in the economy.