The US central bank, the Federal Reserve, on Wednesday raised its benchmark interest rate by half a percentage point and reduced its support for the US economy, an apparent effort to curb rising inflation in the world’s largest economy.
The interest rate hike, pushing its federal-funds rate to a target range of between 0.75% and 1%, was the largest since 2000, and could accelerate rapidly through the US economy, for businesses and consumers alike. could raise lending rates, with the goal of curbing spending and cutting inflation. The Fed usually raises interest rates in quarter-point increments.
The cost of consumer goods in the US has been rising for months, and in March posted 8.5% year-over-year growth, the biggest jump in four decades. American consumers are paying increasingly higher prices for food, housing and gasoline at service stations, squeezing family budgets.
In addition to raising interest rates, the Fed said that starting next month it will back its $9 trillion asset portfolio in another move to curb inflation.
“The invasion of Ukraine by Russia is causing tremendous human and economic hardship. The implications for the US economy are highly uncertain,” the Fed said in a statement after the two-day meeting in Washington.
It added, “Invasions and related events are exerting additional pressure on inflation and are likely to impact economic activity. In addition, the COVID-related lockdown in China is likely to exacerbate supply chain disruptions in world trade.
After the meeting, Fed Chairman Jerome Powell told a news conference that “inflation is very high, and we understand the difficulty it causes.”
But he said the Federal Reserve may have several measures in place in the coming months to bring the inflation rate down to the Fed’s 2% average target, but not so fast that it sends the US economy into recession.
Ahead of this week’s meeting, policymakers had already said they could raise interest rates several times through the end of 2022 to slow consumer price growth.
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