The Federal Reserve on Wednesday raised a key interest rate by a half point and reaffirmed a more aggressive strategy to try to subdue the worst outbreak of U.S. inflation in 40 years.

As part of a two-pronged fight against inflation, the central bank also said it plans to whittle down its $9 trillion stockpile of Treasury bonds and mortgage-backed securities starting on June 1.

“Inflation is much too high and we understand the hardship it is causing,” said Fed Chairman Jerome Powell in what he called a direct message to the American public. “We are moving expeditiously to bring it back down.”

The central bank as expected lifts its fed funds rate to a range of 0.75% to 1% in what’s expected to be a series of increases. The vote was unanimous.

It’s the second rate hike this year and the biggest since 2000. Powell also said further 1/2-point rate increases are on the table at upcoming meetings

“The central bankers want to convince Americans that while they can’t do much to alleviate this year’s price pressures, they shouldn’t expect elevated inflation to persist in subsequent years,” said chief economist Avery Shenfeld of CIBC Economics. “Hiking more aggressively up front is part of that messaging.”

U.S. stocks DJIA, 1.91% SPX, 1.89% surged after the Fed announcement and bonds TMUBMUSD10Y, 2.915% were little changed. Rising interest rates have put a dent in U.S. stock markets in early 2022 and raised questions about whether they can regain their momentum.

The Fed is aiming to push its benchmark short-term rate to 2.5% or even higher by year end after keeping it near zero during most of the pandemic. The bank slashed rates after the viral outbreak in 2020 to shore up a depressed economy.

The Fed’s balance sheet, meanwhile, ballooned to twice its size during the pandemic in a successful effort to bring down long-term interest rates. The goal was to help the economy by making it cheaper for consumers to buy a house or car or for businesses to get a loan.

Initially the Fed plans to reduce its holdings by $47.5 billion a month. After three months the Fed would ramp up to $95 billion a month in asset reductions, a move that could drain liquidity from money markets for years to come.

The central bank’s statement after its regular two-day strategy session indicated greater worry about inflation, including the prospect that it might not have peaked yet.

Powell said Covid-related lockdowns in China could worsen supply-chain bottlenecks that have prevented companies from obtaining enough materials and played a large role in the current episode of high inflation.

“The committee is highly attentive to inflation risks,” said the Fed statement, the first time that line has appeared.

The Fed’s easy-money approach earlier in the pandemic, combined with massive government stimulus, helped contribute to the surge in inflation, economists say.

The cost of living has jumped 8.5% in the past year, according to the consumer price index. By comparison, inflation rose less than 1.4% a year on average in the decade preceding the pandemic.

Another big contributing factor, analysts noted, is the broad global shortage of supplies after the U.S. and other countries began to recover from the pandemic.

Businesses were unable to cope with the sudden flood of demand fueled by government stimulus payments because they could not obtain enough materials to produce all the goods and services that customers desired.

In any case, the Fed is now prepared to move quickly to raise rates to try to slow demand and reverse the high tide of inflation.

Before the Fed announcement, financial futures markets predicted the central bank would raise its short-term rate to 3% by the end of 2022, above the Fed’s most recent forecast of around 2.5%.

Investors also believed the Fed would raise rates by 75 basis points in at its June meeting — the first increase of that size since 1994. But Powell poured cold water on that idea, saying the Fed is likely to stick to 1/2-point rate hikes for now.

A rising number of economists and former Fed officials, however, fret that the central bank is likely to induce a U.S. recession by raising rates so rapidly to quell inflation. In the post World War Two era the Fed has never reduced inflation running at such a high level without triggering a downturn.

Powell and other senior Fed officials insist they can achieve a so-called soft landing, central-bank lingo for lowering inflation while keeping an economic expansion intact. Yet Powell acknowledged that threading the needle “won’t be easy.”

By and large, the economy has grown rapidly after a brief recession caused by the coronavirus in the spring of 2020, led by strong consumer spending. Although economic activity “edged down in the first quarter, the Fed said, “household spending and business fixed investment remained strong.”

The tightest labor market in decades, what’s more, has helped the U.S. recover nearly all 22 million jobs lost early in the pandemic and spawned the biggest increase in wages in four decades. That’s allowed Americans to spend more.

“Job gains have been robust in recent months, and the unemployment rate has declined substantially,” the Fed said.

Soaring inflation is starting to take a bite out of the economy, though.

Businesses and consumers are facing enormous price increases and customers are starting to balk at paying extra. Houses, cars, electronics and staples such as groceries and gas have gotten a lot more expensive.

Labor is also in short supply, and the Fed is increasingly worried that it could add to inflation.

The worst-case scenario is a wage-price spiral like in the 1970s in which workers, consumers and businesses all come to expect prices to keep rising, making chronic high inflation a self-fulfilling prophecy.

Fed leaders insist the current situation is nothing like the 1970s and that it will get inflation back under control.

“We don’t see wage-price spirals now,” Powell said.

Futures markets appear to believe the Fed will succeed. Bond futures have not risen to levels that suggest high inflation is here to stay.

The central bank’s aim to to slow the rate of inflation to less than 3% by early next year. Its long-run target is an inflation rate that averages 2% to 2.5%.