The Federal Reserve has raised interest rates by 75 basis points on Wednesday as part of its plan to battle record-high inflation. This marks the largest rate hike the U.S. central bank has implemented since 1994.
The Federal Open Market Committee decided to raise the range for the federal funds rate between 1.5% and 1.75% to ultimately achieve an inflation rate of 2% while keeping the labor market strong.
“Clearly, today’s 75 basis point increase is an unusually large one, and I do not expect moves of this size to be common,” said Fed Chairman Jerome Powell at his post-meeting news conference before adding that he expects the July meeting to see an increase of 50 or 75 basis points.
The FOMC said in a statement issued Wednesday that while overall economic activity has picked up after edging down in the first quarter, job gains have been robust in recent months, the unemployment rate has remained low, and inflation remains high, “reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.”
“The invasion of Ukraine by Russia is causing tremendous human and economic hardship,” the statement added. “The invasion and related events are creating additional upward pressure on inflation and are weighing on global economic activity. In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions. The Committee is highly attentive to inflation risks.”
This rate hike follows the Fed announcing a 0.25% rise in March a 0.5% hike in May, the latter marking the sharpest increase since 2000.
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