By Mario Marroquin
Despite raising the primary credit rates by 75 basis points
to 1.75% on Wednesday, the next 12 months will be touch and go for the Federal
Reserve, according to Chairman Jerome Powell.
At a news conference on Wednesday, Powell said the Fed is
working arduously to bring inflation down to its long-term target of 2% in the
next 12 months and weighing additional interest rake hikes as early as the next
Board of Governors meeting.
The interest rate hike announced by Powell on Wednesday is
reportedly the largest single rate hike in a single meeting since 1994. The
primary credit rate hike comes one month after the Fed raised rates in May by
50 basis points and 25 basis points in March.
Powell did not rule out the possibility of an interest rate
hike above 75 basis points in upcoming meetings this year, and said the Fed
hopes to return to positive real interest rates by next year provided inflation
and expectations of inflation continue to ease in the coming months.
“We’re very focused on getting inflation back down to 2%
which we think is essential for the benefit of the public and also to put us on
a path to a sustainably strong labor market like before the pandemic,” Powell
told reporters on Wednesday. “We will make our decisions meeting by meeting and
we’ll continue to communicate our thinking as clearly as we can.”
The Federal Open Market Committee raised the range of the target federal funds rate to 1.5% - 1.75%, while the Fed said in a news release that ongoing increases in the target range may be appropriate in the coming months.
In addition to the announcement by the Board of Governors, the Fed also announced the following directives for monetary policy implementation:
· Conduct overnight repo operations with a minimum
rate of 1.75% with an aggregate operation limit of $500 billion.
· Conduct overnight reverse repo operations at an
offering rate of 1.55% with a daily per-counterparty limit of $160 billion per
day.
· “Roll over at auction the amount of principal payments from the Federal Reserve's holdings of Treasury securities maturing in the calendar months of June and July that exceeds a cap of $30 billion per month. Redeem Treasury coupon securities up to this monthly cap and Treasury bills to the extent that coupon principal payments are less than the monthly cap.”
