Stocks Jump After Fed Decision on Interest Rates: Live Updates

The Federal Reserve raised interest rates by a half percentage point and announced a plan to shrink its massive bond holdings, decisive measures aimed at tamping down the fastest inflation in four decades.

Wednesday’s move marked the Fed’s largest interest rate increase since 2000, and by shrinking its nearly $9 trillion balance sheet at the same time, the Fed is rapidly withdrawing support from the economy. Together, the policies are likely to ricochet through markets and the economy as money becomes more expensive to borrow.

The quick pullback of monetary help is a sign that the central bank is getting serious about cooling down the economy and job market as rapid inflation persists and as officials grow nervous that it could become more permanent. Prices have been climbing at the fastest pace in 40 years for months now.

At a news conference following the decision on Wednesday, Fed Chair Jerome H. Powell said that “inflation is much too high” and that the Fed is “moving expeditiously to bring it back down.”

He noted that policymakers could continue increasing rates by larger than normal increments as they did on Wednesday.

“There is a broad sense on the committee that additional 50 basis point increases should be on the table at the next couple of meetings,” Mr. Powell said.

Policymakers spent much of 2021 hoping that inflation would ease on its own as supply shortages moderated and as the economy evened out following early-pandemic disruptions. But normalcy has yet to return, and inflation has only accelerated. Now, fresh pandemic-related lockdowns in China and the war in Ukraine are further elevating prices for goods, food and fuel. At the same time, workers are in short supply and wages are rising rapidly in the United States, feeding into higher prices for services as consumer demand remains strong.

The “lockdowns in China are likely to exacerbate supply chain disruptions,” and the invasion of Ukraine “and related events are creating additional upward pressure on inflation and are likely to weigh on economic activity,” the Federal Open Market Committee statement for May said. “The committee is highly attentive to inflation risks.”

The Fed reiterated that “inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.”

Fed officials have decided that they no longer…