Fed raises interest rate for the first time since 2018 and increases inflation forecast

update at the close of Wall Street. Add analyst. ///Washington, 16 Mar 2022 (AFP) - The US Federal Reserve (Fed, Central Bank) raised its benchmark interest rates Wednesday by a quarter of a percentage point to 0.25-0.50%, in its first increase since 2018, to deal with inflation at 40-year highs.The conflict situation in Ukraine “could create pressure additional to the upside on inflation and regret on economic activity,” the Fed warned in a statement, following a two-day meeting of its monetary policy committee (FOMC). The agency's officials are forecasting additional rate hikes this year, and predicting a GDP expansion of 2.8% in 2022 compared to 4% of their previous forecasts. reported “high” inflation explained by “pandemic-related supply and demand imbalances, high energy prices and widespread price pressures”, so further increases in the monetary policy rate will be “appropriate.” The Fed cut its benchmark interest rate to zero in March 2020 to sustain the economy, consumption and investment, in the face of the coronavirus pandemic. The decision to raise rates by a quarter of a percentage point was almost unanimous: only St. Louis Fed President James Bullard voted against because he was in favor of a half-percentage increase. - Inflation vs growth - The head of the Fed, Jerome Powell, has said that the agency will seek to control inflation, without affecting economic growth.On Wednesday, Powell said at a press conference after the FOMC meeting, that it will take “longer” than expected to bring inflation to the 2% target, but said that growth remains solid and sees no risk of a recession.” Inflation will probably take longer than expected to return to our objective of price stability,” he said. The agency's projection is 4.3% inflation for 2022 and 2.7% next year, before reaching 2.3% in 2024. This is “a clearly higher trajectory than expected in December,” Powell stressed. Inflation reached 7.9% at 12 months in the United States last February, according to the Department of Commerce's CPI index. The Fed prefers to abide by the PCE index, which accounts for +6.1% for 12 months in January.These are figures that revive the spectrum of double-digit inflation of the 1970s and early 1980s, when the Fed brought its rates to 20% containing inflation but at the cost of a recession.The market expects a total of seven rate hikes this year, for bring this reference to 1.75% annual.Raising the rates guidelines leads commercial banks to propose higher rates to their customers to take loans for the purchase of homes, cars, appliances, or investments for businesses.This measure strikes consumption and relieves pressure on prices, against the backdrop of problems in According to Powell, growth will continue and “the likelihood of a recession next year is not particularly high,” he added. The Fed will now address the reduction of its balance sheet, that is, to part little by little from the billions of dollars in Treasury bonds and other assets it has held since March 2020 to sustain economic activity in the midst of a pandemic.” The Committee plans to start reducing its assets (...) at a future meeting,” said the Fed on Wednesday without further clarifies.The New York Stock Exchange ended up sharply on Wednesday, quickly incorporating the rate hike decided by the US Federal Reserve, and driven by a drop in oil and expectations of progress between Russia and Ukraine.Thus the Dow Jones gained 1.55% to 34,063.10 points, the Nasdaq technology 3.77% to 13,436.55, and the S&P 500 2.24% to 4,357.86 units.” The announcement was as expected,” said Bill Northey of US Bank Wealth Management. “There was no surprise, but the Fed took a somewhat more aggressive stance on monetary policy,” he summarized.hs/cs/mr/rsr/dga/mr