Federal Reserve First Rate Hike Since 2018

Introduction

Yesterday, Fed chair, Powell, had a news conference following the federal reserve’s raised interest rates by 0.25 percentage points. This would be the first time since 2018 that the federal reserve would be raising rates. Here are the things you need to know about the news conference:

• Balance sheet reduction may start in May, 2022.
• Price stability is needed for sustained employment.
• Inflation is expected to return to 2%.
• A recession is still far away.

Balance sheet reduction may start in May, 2022

The US balance sheet through years of security buying has grown to figures near $9 trillion. Powell stated the intentions of the federal reserve to start reducing the size of its holdings as early as May. The markets also expect that the government holdings would be cut by several trillions of dollars.

Price stability is needed for sustained employment

Powell also stated the importance of achieving price stability, stating that without price stability there really can be no sustainable employment. Hence, the federal reserve would focus on achieving price stability by tackling inflation.

Inflation is expected to return to 2%

Powell reaffirmed his stance on inflation returning to 2%. He also stated that the comeback may take longer than expected, but in the end, inflation would return to 2% and the labour market would remain strong.

A recession is still far away

Amid everything the US. economy is facing including the high inflationary levels, Powell believes that the probability of a recession is still far away with factors like aggregate demand still being strong. Powell sees this as a sign of a strong economy.