Fed raises interest rates half a point, will reduce balance sheet in June
The Federal Reserve on Wednesday raised a key interest rate by a half point and reaffirmed a more aggressive strategy to try to subdue the worst outbreak of U.S. inflation in 40 years.
The Fed is aiming to push its benchmark short-term rate to 2.5% or even higher by year end after keeping it near zero during most of the pandemic. The bank slashed rates after the viral outbreak in 2020 to shore up a depressed economy. “The committee is highly attentive to inflation risks,” said the Fed statement, the first time that line has appeared.
Businesses were unable to cope with the sudden flood of stimulus-fueled demand because they could not obtain enough materials to produce all the goods and services that customers desired. A rising number of economists and former Fed officials, however, fret that the central bank is likely to induce a U.S. recession by raising rates so rapidly to quell inflation. In the post World War Two era the Fed has never reduced inflation running at such a high level without triggering a downturn.
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