BREAKING: U.S. Fed unveils another big interest rate hike at 75 basis points
The U.S. Federal Reserve (Fed) has on Wednesday hiked its key interest rate by three-quarters of a percentage point to curb high inflation.
The U.S. central bank’s decision comes after the country’s inflation soared to 9.1 percent, its highest level in more than 40 years.
“Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures,” the Fed said in a press release.
A 75-basis point, or three-quarter point, hike is putting the Fed funds rate at a 2.25 percent to 2.5 percent target range, equalling its estimate of a “neutral” level that neither restricts nor stimulates growth. The strategy is a significant shift for the central bank, which just four months ago set interest rates at 0 per cent and bought billions of dollars in bonds to support the economy during the Covid-19 pandemic.
“The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 2-1/4 to 2-1/2 percent and anticipates that ongoing increases in the target range will be appropriate. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet that were issued in May. The Committee is strongly committed to returning inflation to its 2 percent objective.”
This is one of the fastest-ever gear changes in U.S. monetary policy as just over four months ago the policy rate was near zero and the Fed was buying billions of dollars of bonds each month to help the economy recover from the repercussions of the COVID-19 pandemic. The Fed started hiking interest rates in March, when the fed funds range was zero to 0.25 percent.
“Russia’s war against Ukraine is causing tremendous human and economic hardship. The war and related events are creating additional upward pressure on inflation and are weighing on global economic activity. The Committee is highly attentive to inflation risks.”
Earlier, the U.S. Commerce Department reported an unexpected jump in durable goods orders in June, a sign of continued business investment, and its estimates for retail inventories and exports last month were solid as well.
