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 central bank also said it plans to start selling off its nearly $9 trillion stockpile of Treasury bonds and mortgage-backed securities in June.
Initially the Fed plans to sell $47.5 billion a month in assets. After three months the Fed would ramp up to $95 billion a month in asset reductions, a move that could drain liquidity from the money markets for years to come.
The central bank as expected lifts its fed funds rate to a range of 0.75% to 1% in what’s expected to be a series of increases. It’s the second rate hike this year and the biggest since 2000.
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 Fed’s balance sheet, meanwhile, ballooned to twice its size during the pandemic in a successful effort to bring down long-term interest rates. The goal was to help the economy by making it cheaper for consumers to buy a house or car or for businesses to get a loan.