Federal Reserve Raises Rates by Half a Percentage Point

May 4, 2022

The Federal Reserve recently raised its benchmark interest rate by half a percentage point in response to a 40-year high in inflation.

The increase will push the federal funds rate to a range of 0.75%-1%. The 50-basis-point increase is the biggest increase the rate-setting Federal Open Market Committee (FOMC) has instituted since May 2000. Fed Chairman Jerome Powell stated that moves of 50 basis points “should be on the table at the next couple of meetings” of the FOMC.

In addition, the Fed indicated it will reduce asset holdings on its $9 trillion balance sheet. The balance sheet reduction will happen in phases, with the Fed allowing a capped level of proceeds from maturing bonds to roll off every month while reinvesting the rest. Beginning June 1, $30 billion of Treasurys and $17.5 billion on mortgage-backed securities will roll off. After three months, the cap for Treasurys will increase to $60 billion and $35 billion for mortgages.