The S&P 500 index pared intraday gains over the past hour after the U.S. Federal Reserve announced its first rate hike since the start of the pandemic.
Fed’s plans regarding the balance sheet
Chair Jerome Powell on Wednesday signed a 25 basis points increase in the interest rate that now stands between 0.25% and 0.50%. The FOMC said:
“We anticipate that ongoing increases in the target range will be appropriate. In addition, the Committee expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting.”
The central bank values its balance sheet at roughly $9.0 trillion at present.
Six more rate hikes expected this year
The remaining six meetings this year, the Fed indicated, will also see rates go up in pursuit of the consensus funds rate of 1.9% by the end of 2022. It sees three rate hikes in 2023 and none in the year after that.
According to Powell, there isn’t an “elevated” risk of recession within the next year. The FOMC continues to see solid growth this year in economic activity despite the Ukraine war. Labour market is expected to remain strong.
Also on Wednesday, Citi’s Steven Wieting said the monetary policy tightening will alter the environment for investing.
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