US Federal Reserve Raises Interest Rates By 50bp to 0.75-1.00% Target

Industry News

& Articles

US Federal Reserve Raises Interest Rates By 50bp to 0.75-1.00% Target

  • Core inflation in the US soared to 5.2 per cent in March, compared with the previous year
  • Federal Reserve target inflation rate is 2 percent
  • Federal Reserve considers US the US economy is strong enough to withstand higher interest rates
  • Markets braced for Federal Reserve Funds rate of 2.75 percent by December 2022
  • Lower US bond yields post rate rise imply further rate rises unlikely to rattle markets

 US half-percentage interest rate increase

In a widely anticipated move, the US Federal Reserve Board increased the target range for the Federal Funds interest rate by half a percent to a higher range of 0.75 percent to 1 percent. This is the second consecutive monthly rate rise of half a percent since 2006 and the first time in 20 years that a rate rise of more than a quarter of one percent has been applied in a single Reserve Board policy meeting.

What the Federal Reserve said

The Federal Reserve Board met over 2 days so their well-considered commentary has been carefully analysed by global debt markets and banking institutions. The Federal Reserve statement released after the meeting observed that the war on Ukraine has pushed up energy and commodity prices, creating upward pressure on the rate of inflation. The Federal Reserve also noted that further recent COVID-19 related lockdowns in China are likely to exacerbate current supply chain bottlenecks. These disruptions are adding to input costs and weighing down on economic activity. The looming inflation problem is further compounded by the existing tight labour market in the US at 3.6 percent unemployment and an increase in employment numbers in March of 431,000.  This is among the tightest labour market in US history and is a sure sign of price pressures becoming more entrenched as wages are a major component of input costs, leading to higher inflation, especially during periods of high consumer demand, when the economy is strong.

The Federal Reserve’s preferred measure of core inflation is the personal consumption expenditures price index, and this soared to 5.2 per cent in March, compared with the previous year. This is well outside the Federal Reserve’s stated inflation target of 2 per cent and implies that there are more rate rises on the way. The question for markets now is how many interest rate rises are on the way.

The Federal Reserve chairman, Jerome Powell, assuaged bond and equity market fears that the recent rate rise would be higher at 0.75 percent and not 0.5 percent. The markets feared that a 0.75 percent increase may tip the global economy into recession. Chairman Powell sated that further rate increases are planned for the coming months ahead; however, he stated that the increases will be in increments of 0.5 percent. He added that moving more aggressively on interest rates was not under active consideration.

This implies that the Federal Reserve is targeting a neutral Federal Funds rate, which is widely considered to be somewhere between 2 and 3 per cent, although some economists consider it may be much higher, especially now that inflation has well overshot the Federal Reserve’s 2 per cent inflation target. Powell said a neutral rate was “not something we can identify with any precision” and stated the Federal Reserve “will not hesitate” to go beyond that threshold if warranted by the data.

Assuming 2 consecutive Federal Reserve rate rises in June and July, each of half a percent, the Federal Reserve interest rate would rise to be 2 percent. To achieve a neutral funds rate of (say) 2.75 percent, will require at least 3 rate rises of a quarter of one percent in the months of September, November and December.

The market response

Chairman Powell’s forward guidance was well received by capital markets when he indicated a less aggressive stance on interest rates to what was previously anticipated by global capital market participants.

The US bond market reacted favourably to this reassurance, by immediately lowering the 10-year and 30-year bond yields by 0.037 percent and 0.027 percent to 2.96 percent and 3.037 percent. Equity markets also responded favourably with the Dow Jones Industrial Average finishing up 932.27 points, or 2.8%, to 34061.06. The S&P 500 jumped 124.69 points, or 3%, to 4300.17. Both indexes had been down earlier in the day.

Markets are now braced for a 0.5 percent rate increase at the next two Federal Reserve Board interest rate policy meetings in June and July. The Capital markets understand that the pandemic-era stimulus does not sit logically with the existing tight labour market in the US at 3.6 percent unemployment. Accordingly, markets anticipate increases of a quarter of 1 percent in September, November and December, taking the Federal Funds rate to 2.75 per cent by the end of the year. Federal Reserve officials believe the US economy is strong enough to withstand this tighter monetary policy stance.

This commentary from the Federal Reserve Board has clearly calmed markets for now and with further rate increases baked in to bond and equity prices, markets are unlikely to sell-off when the increases are announced.

Louis Mosmann

Louis Mosmann is a Private Wealth Client and Research Assistant at KOSEC- Kodari Securities. Louis covers macroeconomic events, global markets and ASX300 company announcements, allowing clients to make more informed investment decisions. Email Louis at

Comment on this company

Latest Stories

Aristocrat Delivers Strong Top And Bottom-Line Growth Sending Shares 6% Higher

Aristocrat reported a half-year Net Profit After Tax before Amortisation……

BlueScope Steel Upgrades 2H22 Earnings Guidance On Higher Steel Prices

Better than expected steel prices and spreads for BlueScope’s painted……

James Hardie Delivers Strong Fourth Quarter With A 36% Rise In Profits

Global net sales of US$3,614 million were up 24 percent, boosting……

More for you

AUB Announces Share Retail Entitlement Offer At $19.50 Per New Share

Shareholders have until 27 May to apply for New Shares under……

CBA Posts Steady March Quarter With A $2.3B Profit

A 25 percent increase in grain handling and elevated grain prices……

GrainCorp Records $246M Half-Year Profit In Favourable Wheat Market

A 25 percent increase in grain handling and elevated grain prices……

US Equity Markets Decline In 6 Week Sell-Off Amidst Global Uncertainty

Global equity markets have continued their six week decline with……

AUB Enters UK Market With A$880M Lloyds Insurance Broker Acquisition

AUB has today announced the acquisition of Tysers, a leading Lloyds……

Temple & Webster Launch Online Home Improvement Website

Temple & Webster have today launched a new online store……

KOSEC Terms & Conditions

Kodari Securities Pty Ltd (CAR 399556) trading as KOSEC is regulated by the Australian Securities and Investment Commission (ASIC). KOSEC is a financial services company and any information provided by its platforms, portals, reports and documents is protected by copyright. Any unauthorised production of this information is prohibited.
KOSEC reserves the right to change or remove any information provided on our website, reports or any documents including these terms and conditions at any time without notice. The change or modification to the terms and conditions will be effective immediately upon posting an updated version on our website, necessary platforms and documents. It is recommended that you review the information provided on our website, including these terms and conditions frequently for any changes.

KOSEC provides general advice only. The information provided is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. KOSEC recommends that you obtain your own independent professional advice before making any decision in relation to your particular requirements or circumstances. Please make sure you read our Financial Services Guide (FSG).

KOSEC does not guarantee any returns. Past performance of any product discussed is not indicative of future performance. (We urge that caution should be exercised in assessing past performance. All financial products are subject to market forces and unpredictable events that may adversely affect their future performance). Investing in the stock market can incur huge losses. Please also be aware that fees will incur on every transaction regardless of the performance of your investments or returns generated. Employees and or associates of KOSEC may hold one or more of the stocks, securities or investments reviewed by the company.

Your use of information from our website, reports, documents and from talking to our representatives/associates is at your risk. Under no circumstance should the investment be based solely on KOSEC information and general advice. You should seek professional financial planning advice.
KOSEC aims to maintain the accuracy of the data and information provided on this website, by using information prepared from a wide variety of sources, which KOSEC to the best of its knowledge and belief, considers accurate and does not make any representations or warranties of any kind, expressed or implied, about the completeness, accuracy, reliability, suitability or availability of the information provided.

We may at times refer to third parties, which the details of these third parties have been provided solely for you to obtain further information about other relevant products and entities in the market. KOSEC has no control over the information third parties have, or the products or services offered, and therefore make no representations regarding the accuracy or suitability of such information, products or services. You are advised to make your own enquiries in relation to third parties. Our inclusion of any third party content is not an endorsement of that content or the third party.

As a client you will be charged a yearly service fee and a set brokerage fee per transaction. Your service fee will automatically renew at the end of your agreed 12 month period at the same rate advertised at the time. Your credit card or bank account will be charged for a further year following which will again auto renew until you cancel your yearly service fee. You can cancel the auto renewal at any time in advance of the renewal date by contacting us. KOSEC is aware of the need to ensure the security of your credit card details and our payment systems are compliant with the Payment Card Industry (PCI) Data Security Standard.

You consent to receiving email correspondence from KOSEC, as well as companies KOSEC has an association with. These emails will be sent by KOSEC and third party companies. You can opt out of receiving any category of emails at any time by contacting us. We may from time to time inform you of special offers, or even ask your opinion of the services we provide, but your involvement is optional. Should you request us to do so, we will archive your details.

Indemnity and Liability
You indemnify KOSEC from all claims or threatened claims, suits, demands, damages, costs as well as including legal costs incurred in dealing with any threatened claim, expenses made by any person or corporation against KOSEC and any other amounts which is caused by KOSEC providing information, execution and General Advice.

You hold KOSEC harmless and release it from any liability in respect of any loss, harm or damage arising from a decision made by you on the basis of information obtained through the use of our portal, reports, documents or any General Advice given and any transaction taken place.

You hold KOSEC harmless and release it from any liability in respect of any loss, harm or damage arising from delays in executing orders for the client and acknowledges KOSEC makes no guarantees about the time taken to execute an order on behalf of the client. You acknowledge that KOSEC relies on third parties in providing technology and release KOSEC from any harm, loss or damage you may suffer as a result of the failure of such information technology.

Cookies and Links
KOSEC website, and its portal uses cookies, which lets us identify your browser while you are using the site or our portal. Cookies do not identify you personally. They simply allow us to track your usage patterns. If you prefer not to receive cookies, you can configure your browser to reject them or to notify you when they are being used. The functionality of the KOSEC website may be impacted if you restrict the use of cookies.

Fill up the form below and we will get back to you as soon as possible.



KOSEC’s CEO, Michael Kodari’s new book, “Stock Market Success” valued at $39.95, available at Dymocks book stores with all the proceeds going to Dymocks Children’s Charities.


Latest TV Commercial