Produced by: MOS Video Department

On May 4th, the U.S. central bank’s policy-setting Federal Open Market Committee voted unanimously to increase the benchmark rate by 0.5 percentage points to a target rate range between 0.75% and 1% to tamp down the soaring inflation. This is the largest interest rate hike since 2000. The committee also decided to begin shrinking the Fed’s $8.9 trillion balance sheet starting on June 1st, at a pace of $ 30 billion in Treasuries and $17.5 billion in mortgage-backed securities per month, stepping up to $95 billion over three months. This policy move would further push up borrowing costs. Due to the unprecedented impact of the CCP virus on the global economy, the inflation was now running at a 40-year high in the U.S. Driven up by rising prices for gasoline, housing, and food, the Consumer Price Index (CPI) in March was 8.5% higher than it was a year ago. The increasing costs of essential goods and services are outstripping average wage gains. 

The Fed was seeking to reapply Paul Volcker’s policies in the early 1980s, which crushed the inflation by hiking interest rates rapidly, hoping that the combination of higher borrowing costs and a shrinking balance sheet would deliver a soft landing that could avoid recession while tamping down inflation. Fed Chairman Jerome Powell expressed his concerns about the economic crisis and believed that the timing and manner of the current measures might not completely avoid a recession.

Posted by: 谐趣园

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