'Inflation is much too high:' Fed hikes rates half-point, signals more to come

The U.S. central bank’s policy-setting Federal Open Market Committee on Wednesday voted unanimously to increase the benchmark rate by a half percentage point. It will begin allowing its holdings of Treasuries and mortgage-backed securities to decline in June at an initial combined monthly pace of US$47.5 billion, stepping up over three months to $95 billion.

Treasuries fluctuated and stocks remained higher following the decision, as investors digested his guidance that appeared to pour cold water on the chances of a jumbo-sized 75 basis-point increase in the months ahead. Policy makers, who widely signalled their intention to step up the pace of rate increases, are trying to curb the hottest inflation since the early 1980s. Back then, Chair Paul Volcker raised rates as high as 20 per cent and crushed both inflation and the broader economy in the process. The Fed’s hope this time around is that the combination of higher borrowing costs and a shrinking balance sheet will deliver a soft landing that avoids recession while tamping down inflation.

Investors had been increasingly betting the FOMC will opt for an even bigger rate increase, of three quarters of a percentage point, when it next meets in June — which would be the largest single hike since 1994. While officials have so far downplayed that idea, several have in recent weeks expressed a desire to “expeditiously” bring the federal funds rate to around 2.5 per cent by the end of the year, a level they deem roughly “neutral” for the U.S. economy.

financialpost I promise all companies (like Loblaws raking in record profits) have to do is lower their prices and this 'inflation' goes away.

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