Fed Delivers 50 bps and Sets QT Clock
What Happened
On May 4 the Fed raised rates by 50 bps to 0.75–1.00% and detailed a June start to quantitative tightening, initially capping runoff at $47.5B a month before stepping up to $95B. Chair Powell ruled out a 75 bps move “for now,” easing some market anxiety.
What It Means
The policy path steepened while QT added another tightening channel. Equities rallied on the dismissal of 75 bps, but front-end rates still priced an aggressive summer. Liquidity conditions began to tighten as Treasury and MBS runoff loomed.
What I Think
The Fed wanted to signal control without spooking credit. I see a risk that disinflation proves slow, forcing the committee toward the 75 bps step it tried to sidestep. QT will quietly matter more than the press conference sound bites.
Market Terms
- Half-point liftoff – First 50 bp hike since 2000 to tackle inflation.
- QT runoff caps – Balance-sheet roll-off starting at $47.5B then stepping to $95B.
- No-75-for-now relief – Powell’s pushback that briefly calmed risk assets.
- Front-end hawkish pricing – Markets still baking in aggressive summer hikes.
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