The Fed raised its benchmark interest rate by 75 basis points yesterday, to a range between 1.50% and 1.75%, and signaled stronger inflation-fighting measures ahead. We think that policy path will eventually cool inflation—but at a greater cost to economic growth than the Fed expects. And financial markets will likely stay volatile for a while.
Fed Chair Jerome Powell had earlier indicated a likely 50 basis point June hike, but media reports had increasingly pointed to a 75-point hike—and markets priced in the more aggressive outcome. The central bank leader cited recent inflation numbers and rising inflation expectations as drivers of the bigger move. Powell noted that the size of future hikes would depend on incoming information, though he expects a hike of 50 or 75 basis points will likely be appropriate in July.
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