Federal Reserve Tackles Inflation With Largest Rate Hike Since 1994

The US central bank has announced its most significant interest rate increase since 1994 as it toughens its fight against soaring prices.

This week, the Federal Reserve raised short-term interest rates by 0.75 percent as part of an effort to tamp down on inflationary pressures. The Fed set the benchmark interest rate to a target range between 1.5 percent and 1.75 percent and anticipates that ongoing increases in the target range will be appropriate.

According to a statement:

Overall economic activity appears to have picked up after edging down in the first quarter. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, 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 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.

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 1‑1/2 to 1-3/4 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.

The press release issued by the Board of Governors of the Federal Reserve System is available here.

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