Fed raises rates by half a percentage point — the biggest
  hike in two decades — to fight inflation 

  The Federal Reserve on Wednesday raised its benchmark interest rate by half a percentage point, the most

  aggressive step yet in its fight against a 40-year high in inflation. 

  “Inflation is much too high and we understand the hardship it is causing. We’re moving expeditiously to bring

  it back down,” Fed Chairman Jerome Powell said during a news conference, which he opened with an

  unusual direct address to “the American people.” He noted the burden of inflation on lower-income people,

  saying, “we’re strongly committed to restoring price stability.” 

  That likely will mean, according to the chairman’s comments, multiple 50-basis point rate hikes ahead,

  though likely nothing more aggressive than that. 

  The federal funds rate sets how much banks charge each other for short-term lending, but also is tied to a

  variety of adjustable-rate consumer debt. 

  Along with the move higher in rates, the central bank indicated it will begin reducing asset holdings on its

  US$9 trillion balance sheet. The Fed had been buying bonds to keep interest rates low and money flowing

  through the economy during the pandemic, but the surge in prices has forced a dramatic rethink in

  monetary policy. 

  Markets were prepared for both movesbut nonetheless have been volatile throughout the year. Investors

  have relied on the Fed as an active partner in making sure markets function well, but the inflation surge has

  necessitated tightening. 

  Wednesday’s rate hike will push the federal funds rate to a range of 0.75%-1%, and current market pricing

  has the rate rising to 2.75%-3% by year’s end, according to CME Group data. 

  Stocks leaped higher following the announcement while Treasury yields backed off their earlier highs. 

  Markets now expect the central bank to continue raising rates aggresively in the coming months. Powell,

  said only that moves of 50 basis points “should be on the table at the next couple of meetings” but he

  seemed to discount the likelihood of the Fed getting more hawkish. 

  “Seventy-five basis points is not something the committee is actively considering,” Powell said, despite

  market pricing that had leaned heavily towards the Fed hiking by three-quarters of a percentage point

  in June. 

  “The American economy is very strong and well-positioned to handle tighter monetary policy,” he said,

  adding that he foresees a “soft or softish” landing for the economy despite tighter monetary policy. 

  The plan outlined Wednesday will see the balance sheet reduction happen in phases, with the Fed

  allowing a capped level of proceeds from maturing bonds to roll off each month while reinvesting the

  rest. Starting June 1, the plan will see $30 billion of Treasurys and $17.5 billion on mortgage-backed

  securities roll off. After three months, the cap for Treasurys will increase to $60 billion and $35 billion

  for mortgages. 

  Those numbers were mostly in line with discussions at the last Fed meeting, as described in minutes

  from the session, though there were some expectations that the increase in the caps would be more

  gradual. 

  Wednesday’s statement noted that economic activity “edged down in the first quarter” but noted that 

  “household spending and business fixed investment remained strong.” Inflation “remains elevated.” 

  Finally, the statement addressed the Covid outbreak in China and the government’s attempts to address

  the situation. 

  “In addition, Covid-related lockdowns in China are likely to exacerbate supply chain disruptions. The

  Committee is highly attentive to inflation risks,” the statement said. 

  “No surprises on our end,” said Collin Martin, fixed income strategist at Charles Schwab. “We’re a little

  bit less aggressive on our expectations than the markets are. We do think another 50 basis point increase

  in June seems likely. … We think inflation is close to peaking. If that shows some signs of peaking and

  declines later in the year, that gives the Fed a little leeway to slow down on such an aggressive pace.” 

  Though some Federal Open Market Committee members had pushed for bigger rate increases,

  Wednesday’s move received unanimous support. 

  The 50-basis-point increase is the biggest increase the rate-setting FOMC has instituted since May 2000.

  Back then, the Fed was fighting the excesses of the early dotcom era and the internet bubble. This time

  around, the circumstances are quite a bit different. 

  As the pandemic crisis hit in early 2020, the Fed slashed its benchmark funds rate to a range of 0%-0.25%

  and instituted an aggressive program of bond buying that more than doubled the size of its balance sheet.

  At the same time, Congress approved a series of bills that injected more than $5 trillion of fiscal spending

  into the economy. 

  Those policy moves were followed by clogged supply chains and surging demand as economies reopened.

  Inflation over a 12-month period rose 8.5 in March, as gauged by the Bureau of Labor Statistics’ consumer

  price index. 

  Fed officials for months dismissed the inflation surge as “transitory” then had to rethink that position as the

  price pressures did not relent. 

  For the first time in more than three years, the FOMC in March approved a 25-basis point increase, indicating

  then that the funds rate could rise to just 1.9% this year. Since then, though, multiple statements from central

  bankers pointed to a rate well north of that. Wednesday’s move marked the first time the Fed has boosted

  rates at consecutive meetings since June 2006. 

  Stocks have tumbled through this year, with the Dow Jones Industrial Average off nearly 9% and bond

  prices falling sharply as well. The benchmark 10-year Treasury yield, which moves opposite price, was

  around 3% Wednesday, a level it hasn’t seen since late 2018. 

  When the Fed was last this aggressive with rate hikes, it took the funds rate to 6.5% in early 2000, but was

  forced to retreat just seven months later. With the combination of a recession already underway plus the

  Sept. 11, 2001 terrorist attacks, the Fed rapidly cut, eventually slashing the funds rate all the way down to

  1% by mid-2003, shortly after the Iraq invasion. 

  Some economists worry the Fed could face the same predicament this time — failing to act on inflation

  when it was surging, then tightening in the face of slowing growth. GDP fell 1.4% in the first quarter, though

  it was held back by factors such as rising Covid cases and a slowing inventory build that are expected to

  ease through the year. 
 

  Source: CNBC 
 

  New Record: 1.7 million vehicles leave Jabotabek
  during 2022 exodus period 

  Indonesia’s state-owned toll road operator PT Jasa Marga (Persero) Tbk noted record numbers of traffic

  during the 2022 Eid Al-Fitr exodus period, with 1.7 million vehicles said to depart from Jakarta, Bogor,

  Tangerang and Bekasi (the Indonesian capital city and its greater areas, abbreviated as Jabotabek) to the

  Trans Java toll road and to the cities of Bandung, Merak and Puncak. 

  Corporate Communication and Community Development Group Head at Jasa Marga Dwimawan Heru said

  the number is a 9.5% increase compared to the pre-pandemic level of the 2019 exodus. 

  “Meanwhile, when compared to the normal traffic during the November 2021 period, which was the highest

  rate of traffic we’ve seen during the pandemic, the 1.7 million vehicles crossing through during this year’s

  pandemic period of this year is a 18.6% increase,” he said, as quoted in a press release by Kompas daily. 

  Dwimawan said the destination of choice for the holiday revelers remained the same as previous exoduses, 

  with 53.8 percent of all the destinations being eastward via the Trans Java toll road. Furthermore, as many

  as 27.6% of the destinations were towards Merak harbor west of the capital city of Jakarta, and the

  remaining 18.7% towards Puncak, South of the capital. 

  Source: Kompas