US Fed hikes interest rate by 25 basis points | Here are key takeaways from the FOMC statement

The US Federal Reserve in the latest policy on Wednesday decided to take a smaller hike in key interest rates by a quarter of a percentage point continuing its fight against sticky high inflation.

The US central bank also released economic forecasts. Here are the key highlights from the US Fed statement:

- US Fed raises interest rates by 25 bps to 5.15 per cent, effective May 4 , 2023, as it continues fight against inflation

- The Federal Open Market Committee (FOMC) decided to raise the target range for the federal funds rate 5 to 5-1/4 per cent

- The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks: Fed statement

- Reasons for the hike: “Economic activity expanded at a modest pace in the first quarter. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated.,” said the statement.

- Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans.

- In determining the extent to which additional policy firming may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.

- The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

- Fed maintains plan to shrink balance sheet each month by as much as $60 billion for Treasuries and $35 billion for mortgage-backed securities.

- Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Lisa D. Cook; Austan D. Goolsbee; Patrick Harker; Philip N. Jefferson; Neel Kashkari; Lorie K. Logan; and Christopher J. Waller.

- Conduct standing overnight repurchase agreement operations with a minimum bid rate of 5.25 percent and with an aggregate operation limit of $500 billion.

-Conduct standing overnight reverse repurchase agreement operations at an offering rate of 5.05 percent and with a per-counterparty limit of $160 billion per day.