As expected, the Federal Reserve of the US has approved a rare half-percentage-point interest rate hike and announced plans to shrink its $9 trillion asset portfolio starting next month. This is part of the Fed’s attempt at reining in inflation that is running at a four-decade high.
The moves, announced after a two-day policy meeting Wednesday (May 4, Thursday IST), will raise the central bank’s benchmark federal-funds rate to a target range between 0.75% and 1%.
Together, the steps mark the most aggressive Fed tightening of monetary policy at one meeting in decades, aimed at rapidly reducing the economic stimulus that has contributed to rising price pressures. The Fed, which usually lifts interest rates in quarter-percentage-point increments, last raised rates by a half point in 2000.
The Indian reserve Bank had pre-empted this rise and had increased the bank repo rates by 40 basis points.
More such efforts are expected from central banks around the world, wanting to pull back excess liquidity from the market, trying to force prices down.