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May 4, 2022

The Fed is expected to raise rates by a half point. Investors wonder if it will get more aggressive

  • The Federal Reserve is expected to raise interest rates Wednesday for the second time since 2018, boosting the fed funds target rate by a half-percentage point.
  • The central bank is also expected to launch a program to reduce its massive bond holdings by $95 billion a month, starting in June.
  • The markets are braced for a hawkish Fed, but many investors are wondering if Fed Chair Jerome Powell will signal that the central bank is willing to get even tougher with rate increases.

The Federal Reserve is widely expected to raise its fed funds target rate by a half-percentage point Wednesday, but investors will be more focused on whether it signals it could get even tougher with future rate hikes.

The Fed also is expected to announce the start of a program to wind down its roughly $9 trillion balance sheet by $95 billion a month, starting in June. The 50-basis-point hike would put the fed funds target rate range at 0.75% to 1%. A basis point equals 0.01%.

That target rate after this week’s boost would be well off zero, but way below market expectations for a funds rate above 2.8% by year-end.

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