US targets inflation with biggest rate hike since 1994
The US Federal Reserve raised its target interest rate by three-quarters of a percentage point in an effort to drive down a surge in inflation, and projected a slowing economy and rising unemployment in the months to come.
The rate increase announced on Wednesday was the biggest by the US central bank since 1994, and was delivered after recent data showed little progress in its battle to control a sharp spike in prices.
The move raised the short-term federal funds rate to a range of 1.5 percent to 1.75 percent. With additional rate hikes, policymakers expect their key rate to reach a range of 3.25 percent to 3.5 percent by year’s end — the highest level since 2008 — meaning most forms of borrowing will become sharply more expensive.
“Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices and broader price pressures,” the central bank’s policy-setting Federal Open Market Committee said in a statement at the end of its latest two-day meeting in Washington. “The committee is strongly committed to returning inflation to its 2 percent objective.”
US President Joe Biden has sought to show he recognises the pain that inflation is causing American households but has struggled to find policy actions that might make a real difference
Biden has sought to show he recognises the pain that inflation is causing American households but has struggled to find policy actions that might make a real difference. The president has stressed his belief that the power to curb inflation rests mainly with the Fed.
The move also comes as the central bank is ramping up its drive to tighten credit and slow growth with inflation having reached a four-decade high of 8.6 percent, spreading to more areas of the economy and showing no sign of slowing.
During the next two years, officials are forecasting a much weaker economy than was envisioned in March. They expect the unemployment rate to reach 3.7 percent by year’s end and 3.9 percent by the end of 2023.
