POINTS
The Federal Reserve increased its benchmark interest rate by half a percentage point, in line with market expectations.
In addition, the central bank outlined a program in which it eventually will reduce its bond holdings by $95 billion a month.
The rate move is the largest since 2000 and is in response to burgeoning inflation pressures.
Fed Chairman Jerome Powell underlined the commitment to bringing inflation down but indicated that raising rates by 75 basis points at a time “is not something the committee is actively considering.”

WASHINGTON — The Federal Reserve on Wednesday raised its benchmark interest rate by half a percentage point, the most aggressive step yet in its fight against a 40-year high in inflation.

“Inflation is much too high and we understand the hardship it is causing. We’re moving expeditiously to bring it back down,” Fed Chairman Jerome Powell said during a news conference, which he opened with an unusual direct address to “the American people.” He noted the burden of inflation on lower-income people, saying, “we’re strongly committed to restoring price stability.”

That likely will mean, according to the chairman’s comments, multiple 50-basis point rate hikes ahead, though likely nothing more aggressive than that.

The federal funds rate sets how much banks charge each other for short-term lending, but also is tied to a variety of adjustable-rate consumer debt.

Along with the move higher in rates, the central bank indicated it will begin reducing asset holdings on its $9 trillion balance sheet. The Fed had been buying bonds to keep interest rates low and money flowing through the economy during the pandemic, but the surge in prices has forced a dramatic rethink in monetary policy.

Markets were prepared for both moves but nonetheless have been volatile throughout the year. Investors have relied on the Fed as an active partner in making sure markets function well, but the inflation surge has necessitated tightening.

Wednesday’s rate hike will push the federal funds rate to a range of 0.75%-1%, and current market pricing has the rate rising to 2.75%-3% by year’s end, according to CME Group data.

Stocks leaped higher following the announcement while Treasury yields backed off their earlier highs.

Markets now expect the central bank to continue raising rates aggressively in the coming months. Powell, said only that moves of 50 basis points “should be on the table at the next couple of meetings” but he seemed to discount the likelihood of the Fed getting more hawkish.

“Seventy-five basis points is not something the committee is actively considering,” Powell said, despite market pricing that had leaned heavily towards the Fed hiking by three-quarters of a percentage point in June.

“The American economy is very strong and well-positioned to handle tighter monetary policy,” he said, adding that he foresees a “soft or softish” landing for the economy despite tighter monetary policy.

CNBC