US Federal Reserve Hikes Interest Rates by 75 Points, Highest Since 1994

Fed Chair Jerome Powell acknowledged that the raise an "unusually large one."

2 min read
US Federal Reserve Hikes Interest Rates by 75 Points, Highest Since 1994

Amid rising inflation, the United States Federal Reserve on Wednesday, 15 June, hiked interest rates by 75 basis points (bps) or three-quarters of a percentage point in the biggest such move since 1994.

"The labor market is extremely tight, and inflation is much too high. Against this backdrop, today the Federal Open Market Committee raised its policy interest rate by 3/4 percentage point and anticipates that ongoing increases in the that rate will be appropriate. In addition, we are continuing the process of significantly reducing the size of our balance sheet," Fed Chair Jerome Powell said at a press conference on Wednesday.

Acknowledging that the raise an "unusually large one," Powell said that he did not expect moves of this size to be common. "From the perspective of today, either a 50 or 75 basis point increase seems most likely at our next meeting," he said.


'Inflation Has Surprised to the Upside'

Economists and investors had expected the Fed to raise its benchmark interest rate by half a point, as per US media reports.

Addressing this prediction, Powell said:

"Coming out of our last meeting in May, there was a broad sense on the Committee that a 1/2 percentage point increase in the target range should be considered at this meeting if economic and financial conditions evolved in line with expectations... Since then, inflation has again surprised to the upside, some indicators of inflation expectations have risen, and projections for inflation this year have been revised up notably. In response to these developments, the Committee decided that a larger increase in the target range was warranted at today’s meeting."

"We are highly attentive to the risks high inflation poses to both sides of our mandate, and we are strongly committed to returning inflation to our 2 percent objective," he said.

The aggressive move will affect millions of American businesses and households, pushing up the cost of borrowing for homes, cars, and other loans in order to create a slowdown in the economy.

Fed Reserve Cites COVID Lockdowns in China, Russia-Ukraine War as Factors Behind Inflation

Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures, noted the Federal Reserve in an official statement.

"The invasion of Ukraine by Russia is causing tremendous human and economic hardship. 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," it said.

Committee members expect the federal funds rate ending the year at 3.4 percent, up from the 1.9 percent projection in March, according to the median quarterly forecast.

They also expect the Fed's preferred inflation index to rise to 5.2 percent by the end of the year, with GDP growth slowing to 1.7 percent in 2022 from the previous 2.8 percent forecast.

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