Fed raises interest rates by 75 basis points, Jerome Powell predicting that 75 or 50 basis points will be raised in July

16 Jun 2022 , 09:02 AM

The Federal Reserve hiked interest rates by 75 basis points, the largest increase since 1994, and Chair Jerome Powell hinted at another major move next month, ratcheting up the pressure on the government to rein in inflation.

Powell and his colleagues intensified their effort to cool prices on Wednesday, raising the target range for the federal funds rate to 1.5 percent to 1.75%, despite being chastised by critics for failing to anticipate the fastest price increases in four decades and then being too slow to respond.

At the next meeting of policymakers, he said, another 75 basis-point hike, or a 50 basis-point move, was expected. Interest rates are expected to rise considerably further this year, to 3.4% by December and 3.8% by the end of 2023, according to analysts. That was a significant improvement over the 1.9% and 2.8% they predicted in March.

“Clearly, today’s 75 basis-point rise is an exceptionally large one, and I do not expect moves of this size to be typical,” he said at a post-meeting press conference in Washington, words that were applauded by financial markets as he eliminated the possibility of a spate of super-sized increases.

Stocks rose, halting a five-day slide that saw the S&P 500 lose 10% of its value, while Treasury yields fell and the currency fell.
Nonetheless, the action on Wednesday was more hawkish than the 50-basis-point change previously anticipated by the chair, who justified the faster pace by citing a string of data showing inflation and inflation expectations increasing.

Consumer inflation expectations are rising, according to a survey released by the University of Michigan late last week. Inflation is expected to rise 5.4% in the coming year, the highest level since 1981, according to respondents. Price estimates for the long run have also increased.