'In minutes from their March policy meeting, released Wednesday, Fed officials said that half-point interest rate hikes, rather than traditional quarter-point increases, “could be appropriate” multiple times this year.'
WASHINGTON — Federal Reserve officials are signaling that they will take an aggressive approach to fighting high inflation in the coming months — actions that will make borrowing sharply more expensive for consumers and businesses and heighten risks to the economy., Fed officials said that half-point interest rate hikes, rather than traditional quarter-point increases, “could be appropriate” multiple times this year.
The Fed is “increasingly worried” that consumers and businesses will start expecting price surges to persist, Bostjancic added, a trend that can itself prolong high inflation. Markets now expect much steeper rate hikes this year than Fed officials had signaled as recently as their meeting in mid-March. At that meeting, the policymakers projected that their benchmark rate would remain below 2% by the end of this year and 2.8% at the end of 2023, up from its current level below 0.5%. But Wall Street now foresees the Fed’s rate reaching 2.6% by year’s end, with further hikes next year.
In a speech Tuesday, Brainard underscored the Fed’s increasing aggressiveness by saying its bond holdings will “shrink considerably more rapidly” over “a much shorter period” than the last time it reduced its balance sheet, from 2017-2019. At that time, the balance sheet was about $4.5 trillion. Now, it’s twice as large.
Brainard’s remarks caused a sharp rise in the rate on the 10-year Treasury note, which influences mortgage rates, business loans and other borrowing costs. On Wednesday, that rate reached 2.6%, up from 2.3% a week earlier and 1.7% a month ago. Average mortgage rates have leapt higher, reaching 4.67% last week, according to mortgage buyer Freddie Mac, the highest since 2018.
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