The US central bank (Fed) on Wednesday (May 4) raised its key rates by half a percentage point, the first hike of this magnitude since 2000, in an attempt to control record inflation and signaled that further hikes “would be justified” in the future.
Key rates are now in a range of 0.75% and 1%. In addition, the Federal Reserve will begin to reduce its balance sheet as of June 1, another monetary tightening tool to temper inflationary pressure. Finally, she warns that the war in Ukraine and the confinements in China will aggravate inflation and the problems of logistics.
The impact of containment in China
In addition, lockdowns due to the Covid-19 outbreak in China “are likely to exacerbate supply chain disruptions”says the statement of the Monetary Committee.
The central bank, which has accumulated $9 trillion in treasury bills and other securities to its credit by pouring liquidity into the financial system to support the economy during the pandemic, will begin to backtrack.
→ REREAD. United States: the Fed is cautiously preparing to reduce its support for the American economy
The Fed’s balance sheet will begin to shrink at the rate of $47.5 billion per month from June 1 and to $90 billion after three months, another way to raise the cost of credit to temper demand and price increases.