Fed raises interest rates by 50 basis points

For the second time in consecutive meetings, Federal Reserve officials on Wednesday raised interest rates, this time by a half-percentage point, as the central bank tries to rein in persistently high inflation.

The Federal Open Market Committee raised the target range for the federal funds rate to a range of 0.75% to 1% following a two-day meeting that concluded Wednesday.

Also, the Fed announced that it plans to reduce the size of its roughly $9 trillion balance sheet beginning June 1. Initially, it will trim $47.5 billion a month — $30 billion in Treasuries and $17.5 billion in mortgage-back securities — and after three months will ramp up to cutting as much as $95 billion a month — $60 billion in Treasuries and $35 billion in mortgage-back securities.

Both the rate hike and balance sheet reduction are aimed at lowering inflation, but the Fed noted in its statement that external pressures could cause headwinds.

The implications on the U.S. economy stemming from Russia's invasion of Ukraine are "highly uncertain," the committee said in its statement. "The invasion and related events are creating additional upward pressure on inflation and are likely to weigh on economic activity. In addition, pandemic-related lockdowns in China are likely to exacerbate supply chain disruptions. The committee is highly attentive to inflation risks."

To that end, Fed Chairman Jerome H. Powell began his news conference Wednesday with a message for the American people. Mr. Powell, whom President Joe Biden has renominated to a second term as Fed chairman, said, "We have both the tools we need and the resolve that it will take to restore price stability on behalf of American families and businesses."

Much like after its last meeting in March when it raised the federal funds rate by 25 basis points — the first rate hike since 2018 — the committee said in a statement Wednesday that it anticipates "ongoing increases in the target range will be appropriate."

Mr. Powell said the Fed needs to be nimble to combat inflation and signaled further rate hikes this year.

"Assuming that economic and financial conditions evolve in line with expectations, there is a broad sense on the committee that additional 50-basis-point increases should be on the table at the next couple of meetings," he said. "We'll make our decisions meeting by meeting as we learn from incoming data and the evolving outlook for the economy."

The committee's decision Wednesday to raise the target range 50 basis points was unanimous among its nine members. Its next meeting is June 14-15.