Federal Reserve announces biggest interest rate hike since 1994
With soaring inflation and the shadow of recession hanging over the United States, the Federal Reserve announced a 0.75 percentage-point increase in interest rates on Wednesday – the largest hike since 1994.
In a statement after a two-day meeting, the Fed said “overall economic activity appears to have picked up after edging down in the first quarter”.
But it warned that “inflation remains elevated”, and the invasion of Ukraine by Russia had created “additional upward pressure on inflation and [is] weighing on global economic activity. In addition, Covid-related lockdowns in China are likely to exacerbate supply-chain disruptions.”
It added: “The committee is highly attentive to inflation risks.”
The hike will increase the Fed’s benchmark federal-funds rate to a range between 1.5% and 1.75% and officials said they expected rates to rise to at least 3% this year.
The move came after more bad news on rising prices late last week sent US stock markets into a tailspin, presenting the Fed and the Biden administration with an escalating crisis amid fears that runaway inflation has now spread through the economy.
The Fed cut rates to near zero at the start of the coronavirus pandemic, as the US and global economies effectively shut down. It increased rates for the first time since 2018 in March this year, but the increase did nothing to tamp down rising prices.
The Fed chair, Jerome Powell, initially described rising prices as “transitory”, but has changed his view and says the Fed intends to aggressively increase rates in order to bring prices back under control. In May, the Fed increased rates by 0.5 percentage points, the largest increase in over 20 years, and signaled more, potentially larger, increases were to come.
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