Fed raises rates by 50 bps: ‘50 bps won’t stop inflation for long time’

The U.S. central bank lifted its benchmark interest rate by 50 bps on Wednesday to tackle inflation that stands at about a forty-year high of 8.50%.

75 bps increase is not on the cards

Stocks still went up 2.0% after Chair Jerome Powell confirmed that a broader increase, at least in the next couple of meetings, is unlikely. In the news conference, he said:

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Inflation is much too high and we’re moving expeditiously to bring it back down. The U.S. economy is very strong and well-positioned to handle tighter monetary policy. But a 75-bps increase is not something the committee is actively considering.

As of Wednesday, the federal funds rate is in the range of 0.75% to 1.0%. According to the U.S. Federal Reserve, it will start trimming its $9.0 trillion balance sheet by $47.5 billion a month from June 1st. The pace will double to $95 billion a month in September.

Robert Heller wants the Fed to be more aggressive

Reacting to the rate hike on Wednesday, former Fed governor Robert Heller said the central bank needs to be a lot more aggressive to tame inflation this year. On CNBC’s “Power Lunch”, he noted:

The U.S. Federal Reserve has to step on the brakes and slow down the economy, therefore, we’ve got to have positive real rates. They’re talking about 50 bps steps but that will not stop inflation for a long time to come.

A day earlier, famed hedge fund manager, Paul Tudor Jones said a double whammy of record inflation and slowing growth creates an “unchartered” environment that is suitable for owning neither stocks nor bonds.