FirstFT: Fed tightens monetary policy by largest degree in decades

Good morning. This article is an on-site version of our FirstFT newsletter. Sign up to our Asia, Europe/Africa or Americas edition to get it sent straight to your inbox every weekday morning

The Federal Reserve raised its benchmark policy rate by 0.75 percentage points and said another adjustment of that size was possible at its next meeting, as part of an aggressive plan to tighten monetary policy in the coming months to confront the highest US inflation in 40 years.

At the end of its two-day policy meeting, the Federal Open Market Committee yesterday lifted the rate to a target range of 1.50 per cent to 1.75 per cent, noting in a statement that it “anticipates that ongoing increases in the target range will be appropriate”.

The decision marked an abrupt pivot from the central bank’s previously telegraphed plans for a second consecutive 0.50 percentage point rate rise, which had been explicitly signalled by policymakers before the start of a scheduled “blackout” period ahead of the meeting during which their public communications are limited.

Esther George, president of the central bank’s Kansas City branch, was the sole dissenter, and instead backed adhering to the Fed’s previous guidance.

The increase comes after two alarming reports released on Friday showed an unexpectedly large jump in consumer prices in May and a worrying rise in inflation expectations, suggesting that Americans are growing more concerned about the economic outlook.

Wall Street stocks whipsawed throughout the afternoon but settled higher as investors focused on chair Jay Powell’s assertion that such large rate rises would not become common.

Do you have any feedback on the newsletter? Let me know at firstft@ft.com. Thanks for reading FirstFT Europe/Africa — Jennifer

1. ECB to design new bond-buying plan The European Central Bank has sought to tackle fears that the eurozone is on the cusp of another debt crisis, saying it would speed up work on a policy tool to counter surging borrowing costs in the region’s weaker eurozone economies.

2. Bitcoin tumbles The cryptocurrency industry’s “bloodbath” worsened as the world’s most popular digital asset touched fresh lows for the year. Bitcoin dropped below $20,000 for the first time since July last year while ether, the token linked to the Ethereum blockchain, fell to nearly $1,000.

3. Rishi Sunak urged to save £57bn by withholding BoE interest on reserves The UK chancellor would save billions of pounds for taxpayers over the next three years if he stopped the Bank of England paying interest on money held by commercial banks at the central bank, according to a report seen by the Financial Times.

4. Angola seizes stake in diamond miner The southern African nation has taken majority control of Catoca, one of the world’s largest gem firms, in a move that marks the waning influence of Chinese investors in Angola.

Miners wield axes at a diamond mine in Angola
Catoca, which owns the world’s fourth-largest diamond mine, is owned by Russia’s Alrosa, which has been targeted by US sanctions, and Angolan state diamond company Endiama © ROPI

5. UK pledges to push ahead with Rwanda deportation Home secretary Priti Patel vowed to continue with plans to send asylum seekers to Rwanda, possibly ahead of a judicial review, the day after the European Court of Human Rights halted the first deportations under the policy. Here’s what FirstFT Europe/Africa readers had to say:

“If somebody is deported to Rwanda after all legal avenues have been exhausted, the removal should be followed by independent and non-biased post-return monitoring” — Jari Pirjola in Helsinki, Finland

“The Rwanda plan is immoral, but it also makes no economic sense. It’s ludicrously expensive. It will not solve human trafficking” — Sarah-Jane Field in London, UK

The day ahead

EU leaders visit Kyiv The heads of France, Germany and Italy ⁠are due to visit Ukraine’s capital in a show of defiance against Russia’s invasion. All 27 EU member states will decide next week whether to grant Ukraine candidate status to become a member of the bloc.

Economic developments The eurozone publishes wages data for the first quarter. The Bank of England’s Monetary Policy Committee announces its interest rate decision in the face of rising inflation, as does Switzerland. Italy releases core producer index figures for May.

Corporate news Ferrari holds capital market day in Maranello, Italy, with chief executive Benedetto Vigna expected to unveil the company’s long-term strategy as it adjusts to growing demand for electric vehicles. Companies reporting results include UK car-servicing business Halfords and US software specialist Adobe Systems, while clothing retailer Boohoo has a first-quarter trading update.

What else we’re reading

How French politics put personality ahead of party The legislative elections that end on Sunday have been dominated by three individuals: the liberal internationalist and incumbent president Emmanuel Macron, far-right leader Marine Le Pen and far-left politician Jean-Luc Mélenchon. What does this mean for stability in France?

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.


Boots is a cautionary tale of the buyout boom Back in early January, Cat Rutter Pooley wrote a column arguing that Boots was an asset more or less made for private equity. “Boy, was I wrong,” she now writes, adding that the UK chemist chain is a symbol of just how difficult deals are to do in current markets.

Why we trust fraudsters From Enron to Wirecard, elaborate scams can remain undetected long after the warning signs appear. Left behind in the ashes, however, is a much larger question that haunts all victims of such financial fraud: how on earth did they get away with it for so long?

Inside ‘gentle parenting’ Today’s parents largely believe that physical punishment such as spanking does little to change a child’s bad behaviour and should be avoided, in part because toddlers struggle to control their impulses as their prefrontal cortexes are not fully developed. Here’s why the movement is stressing some parents out.

Why are so many of us facing the ‘Great Overwhelm’? Glasto’s back; foreign holidays are back; breathing in the delicate air of the London Underground without a mask is back. Doesn’t all this freedom make you feel elated? Apparently not, with more than 30 per cent of adults reporting high levels of anxiety. Jemima Kelly looks at what’s driving this. Is Covid-19 still significantly affecting your wellbeing? Let us know by voting in our poll.

Join the FT in partnership with Seismic at Strategies For Dealing With The Great Resignation on June 30, when we will discuss the challenges and opportunities presented by the Great Resignation, with a focus on training and coaching successful sales teams. Register today for free.

Music

With a hits collection titled Finally Enough Love about to be released, is Madonna ready at last to face pop mortality 40 years after she burst on to the music scene?

Madonna on her Blond Ambition tour in 1990
Madonna on her Blond Ambition tour in 1990 © Getty Images

Thank you for reading and remember you can add FirstFT to myFT. You can also elect to receive a FirstFT push notification every morning on the app. Send your recommendations and feedback to firstft@ft.com. Sign up here.

You may also like...