Federal Reserve Raises Interest Rates, Plans To Wind Down Bond Holdings

The Federal Reserve announced it is raising interest rates by another 50-basis points as it tries to clamp down on inflation. The Fed also announced plans to begin winding down its massive $9 trillion balance sheet by $95 billion a month in June.

"The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With appropriate firming in the stance of monetary policy, the Committee expects inflation to return to its 2 percent objective and the labor market to remain strong," the Federal Reserve said in a statement released following the meeting. "In support of these goals, the Committee decided to raise the target range for the federal funds rate to 3/4 to 1 percent and anticipates that ongoing increases in the target range will be appropriate."

Ahead of the anticipated announcement, the stock markets remained flat as investors waited to see what hints the Fed gave towards future rate hikes. The Dow Jones Industrial Average and the S&P 500 were up 0.33% and 0.28%, respectively, while the Nasdaq was down by just 0.05%.

"I think they're going 50 [basis points], and it seems like they're dead set on hiking rates enough to kill inflation," Jim Caron, chief fixed-income strategist at Morgan Stanley Investment Management, said, according to CNBC. "But that's the real debate. Are they trying to get to target inflation by 2024? If they are, the wage inflation is pretty high, and that will require even more tightening than the Fed is projecting."