FED increases primary credit rate by 0.75%

At EDT 2:00 PM Federal Reserve (FED) released Federal Open Market Committee (FOMC) statement. Fed stated that the recent indicators of spending and production have softened. Job gains have been robust lately and unemployment rate has been low. However, inflation remains high due to demand and supply imbalance, increased food and energy prices and broader price pressure.

FED also pointed that the Russia-Ukraine war is the major reason for tremendous human and economic hardship. It has created pressure on inflation and impacted global economic activity.

Currently, the Committee aims to attain maximum employment & inflation at 2% over the long run. In order to support these objectives, the Committee has decided to surge target range for the federal funds rate to 2.25% to 2.5%. Further, the Committee will continue decreasing its holdings of Treasury securities and agency debt as well as agency mortgage-backed securities. The Committee is dedicated to returning inflation to its 2% objective.

Few Major Decision related to monetary policy implementation:

• The Board of Governors of the Federal Reserve System voted to increase the interest rate paid on reserve balances to 2.4%. It would be effective from 28 July 2022.
• They voted to agree a 0.75% rise in the primary credit rate to 2.5%, effective July 28, 2022.
• FOMC has directed the Desk to conduct overnight repurchase agreement operations with a minimum bid rate of 2.5% and with an aggregate operation limit of US$500 billion.
• FOMC has also directed to conduct overnight reverse repurchase agreement operations at 2.3% and with a per counterparty limit of US$160 billion per day. However, the per-counterparty limit can be temporarily improved at the discretion of the Chair.

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