The US Federal Reserve decided at its meeting on Wednesday to raise interest rates by 50 basis points to combat the acceleration of the inflation rate in the United States.

To counter the acceleration of the inflation rate in the United States, the US Federal Reserve decided this Wednesday to raise interest rates by 50 basis points, as analysts had expected. This is the biggest interest rate hike since 2000 and the second hike this year, after it began raising interest rates in March. The focus is now on the press conference that Jerome Powell, Fed chairman, will give after the meeting.

With this hike, according to Eco Online, the Fed's reference rate moves to between 0.75% and 1%. The aim is to reach an interest rate between 2% and 3% - an estimate confirmed by Powell, despite stressing the uncertainty - which is seen as having a "neutral" effect on the US economy, so that in the June and July meetings there should be more hikes. The US inflation rate is currently above 8%, at 40-year highs.

"The committee has decided to increase its target range for the federal funds rate to between 0.75% and 1% and anticipates that continued increases in this range will be appropriate," the US Federal Reserve says in the announcement released this Wednesday.

This means that, as expected by analysts, interest rates should continue to rise at the June and July meetings. At the press conference following the meeting, Jerome Powell confirmed that it is the committee's understanding that "50 basis point increases should be on the table at the next few meetings," in particular "the next two."

The second piece of news also predicted by analysts and now confirmed by the Fed is that the US central bank's balance sheet of nine trillion dollars will begin to shrink. In a separate releasethe Federal Open Market Committee (FOMC) reveals that all participants in the meeting agreed that this gradual reduction of assets (mainly government debt) will start on June 1st. Powell admitted that there is no certainty about the effects of this step.

After the US Federal Reserve's decision, financial markets reacted bullishly. On Wall Street, both the Dow Jones and the S&P 500, which had started the session in positive territory, reached intraday highs, appreciating more than 0.8% each.

As for the Fed's statement, among the changes from the text of the March 16 meeting is the recognition that the lock-ins in China over Covid-19 "are likely to exacerbate supply chain disruptions" globally, which is not unique to the US. "The committee is very mindful of inflation risks," he assures, noting the expectation that the inflation rate will converge back to the 2% medium-term target.

Members of the US Federal Reserve note that US GDP contracted in the first quarter, but argue that both business investment and private consumption "remained strong." The statement highlights the improving labor market, but admits that "inflation remains elevated, reflecting pandemic-related demand and supply imbalances, high energy prices, and broader price pressures."

Powell later added that there are signs that inflation will have peaked, but stressed that it will be necessary to wait for more data to confirm.

At the press conference, Jerome Powell explained that the tools of monetary policy cannot act on the supply side of the problems - a result of the pandemic, now particularly in China, and the war in Ukraine - but it can calm the demand of economic agents, which will help to reduce the imbalance between supply and demand. If the Fed is successful, the inflation rate should slow down.

In the Fed chairman's opinion, in principle it will be possible to curb inflation without putting the US economy into recession. Powell says that the economy remains strong, despite the setback in the first quarter, and that the labor market is very dynamic, with almost double the number of job offers compared to the number of unemployed looking for work. This dynamism should give "room" to raise interest rates without causing a recession in the US, the Fed chairman believes.