The Federal Reserve raised interest rates by 50 basis points, and the three major indexes jumped in the short term

U.S. President Biden delivered a speech at the White House on the current state of the U.S. economy and inflationary pressures. Biden said that by the end of this fiscal year, the U.S. government will cut another $1.5 trillion in the federal deficit , "which will be the largest single-year deficit reduction in U.S. history." Biden said that reducing the deficit and reducing federal government borrowing is a way to ease inflationary pressures.

The Federal Reserve FOMC statement showed that the balance sheet will be reduced at a pace of $47.5 billion per month starting on June 1 ; the upper limit of the balance sheet reduction will be gradually increased to $95 billion per month within three months , that is, $60 billion of U.S. Treasury bonds and $35 billion of mortgage-backed securities (MBS) will be reduced each month. It is expected that it is appropriate to "continue" to raise interest rates, and "attach great importance" to inflation risks; the excess reserve ratio will be raised from 0.4% to 0.9%; and the overnight repurchase rate will be raised from 0.5% to 1%.

This time, the Federal Reserve raised the benchmark interest rate by 50 basis points to the range of 0.75%-1.00%, which was the first substantial rate hike of 50 basis points since 2000 and was in line with market expectations.

Fed Chairman Powell said that the FOMC believes that in the next few meetings, a 50 basis point rate hike is a possible option; Fed Chairman Powell ruled out the possibility of a 75 basis point rate hike . The Fed is rapidly raising the policy rate to a more normal level, and shrinking the balance sheet will also play an important role; the main focus is to reduce inflation to the 2% target. Inflation has obviously exceeded expectations, and inflation may still exceed expectations further; for now, the actual pace of reducing mortgage-backed securities will be below the upper limit. Fed Chairman Powell said that inflation is far above the target, the Fed understands the difficulties, and will act quickly to reduce inflation. The FOMC has the tools to reduce inflation. He also said that the labor market is very tight and inflation must be reduced to keep the labor market strong. At the same time, he said that the FOMC estimates that the neutral interest rate is between 2% and 3%, which is still far from the neutral interest rate, and will decide how high to raise interest rates when the neutral interest rate is reached.

The FOMC can have a greater impact on core inflation. Supply-side problems put the central bank in a difficult position. The Fed's tools cannot really solve the problem of supply disruptions. It is studying very broad financial condition indicators, which include bond and credit spreads. The Fed does not target specific markets in terms of financial conditions. Fed Chairman Powell said that economic activity in the United States is expected to remain stable this year, and the economic performance is "quite good." There are no economic signs that it is close to a recession. Some economic activities may slow down with the fiscal retreat. He also said that the Fed may need to adjust its policy to a tightening level, and if it needs to do so, it will not hesitate. The Fed will do everything it can to reduce inflation. When supply and demand are balanced, there will be a good economy.

Just after Powell said the central bank was not considering raising interest rates by 75 basis points, the three major indexes jumped to their highs of the day in a short period of time, with the Nasdaq up 3.19%, the S&P 500 up 2.99%, and the Dow up 2.82%.