Yahoo Finance's Brian Cheung breaks down the Fed's latest interest rate hike decision and its move to tighten the Fed balance sheet.
RACHELLE AKUFFO: The Fed decision is out, so let's take it over now to Yahoo Finance's Brian Cheung for the latest. Brian.
BRIAN CHEUNG: Well, the Federal Reserve has officially raised interest rates by 0.5%. That largely expected, but the Fed also unveiling details on how it's going to go about its Fed balance sheet rolloff program. The Fed saying that it's going to allow up to $95 billion a month in assets to roll off of its balance sheet by September. That's going to be phased, and the caps are actually going to be about 47.5 billion from the months of June through August.
Now I want to read you some bits from the Fed press release again. The expectations were for the Fed to raise by 1/2 point in this meeting, but the Fed adding a number of risks that it's attentive to, as it starts to raise interest rates. The first, obviously, the Russian invasion of Ukraine. The Federal Reserve continuing to describe that situation as possibly adding, quote, "additional upward pressure on inflation."
But the Fed adding a bit in the statement compared to their last statement in March by noting that China is now likely to exacerbate supply chain disruptions. Obviously, that because of the COVID-related shutdowns with the zero COVID policy in the world's second largest economy. The Fed also adding a sentence, noting that, quote, "The committee is highly attentive to inflation risk."
Now, as far as the economic assessment, the Federal Reserve noting that overall economic activity edged down in the first quarter, that validated by the negative GDP print for the first quarter that came in last week. You'll recall that was a surprise. But the Fed saying that household spending and business fixed investment remained strong. So all of this kind of underscoring how the Fed still fixated on inflation, but again, the big news today, the Fed raising by half a percentage point today and the balance sheet rolloff to begin on June 1, guys.
SEANA SMITH: Yeah, and Brian, the big question here is, what you were just saying when it comes to inflation, exactly what Fed Chair Jay Powell is going to be seeing. We know that he will probably, of course, field some questions on that. But from the conversations that you're having down there from what you have been following, and I guess, what is largely expected in terms of how rapidly we could potentially see inflation de-escalate, I guess, a bit?
BRIAN CHEUNG: Yeah, Seana, I mean, that remains the big question, everyone obsessed with the details on Fed policy. But we have to remember what is the ultimate goal of all of this, which is to try to tamp down inflation. We are seeing prices increase at a yearly rate that we haven't seen since the early 1980s. Now, of course, the Federal Reserve would like to see that number go down, but there's a number of factors at play here. First of all, there's a lag impact of monetary policy. We only got our first interest rate hike from the central bank in March.
Now, the Federal Reserve having this more aggressive move. Again, we haven't seen the Fed move by increments larger, at least in the upwards direction, of 25 basis points since May of 2000. That might not lead through to inflationary pressures until perhaps later in this year, or maybe even the beginning of next year.
Now, the Fed is hoping that there are a number of supply chain issues that will alleviate, which could give them a little bit of help in bringing inflation down, namely, for example, any sort of positive developments that could come from Russia and Ukraine, if there were to be some sort of de-escalation of issues there. We know that Ukraine is the breadbasket of the world. And then also China, if it is, indeed, the case that the COVID shutdowns there are also part of the inflationary pressure story. If there is an alleviation of that pressure, maybe that also bleeds through.
Now, when it comes to a number, we might expect to see Jay Powell in the press conference again in about 27 minutes add some color. But we have to remember that we're not going to get a set of actual projections from the Fed and saying, here's what we project inflation, at least on PCE, to go until the Fed's next meeting. That's going to be in June. So we'll have to wait until then, guys.