Federal Reserve hikes key interest rate by 0.75% points

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Federal Reserve hikes key interest

The Federal Reserve, the central banking system of the United States, increased key interest rates on Wednesday by three-quarters of a percentage point as part of its relentless push to limit rapidly rising inflation even as the economy slowed.

Central bankers voted unanimously to make the unusually large interest-rate move, and the policy-setting Federal Open Market Committee signalled in its post-meeting statement that more is coming, saying that it “anticipates that ongoing increases in the target range will be appropriate.”

The Fed’s policy rate, which trickles out through the economy to affect other borrowing costs, is now set to a range of 2.25 to 2.50%.

As he explained the logic behind the stiffest interest rate increases in roughly four decades, Fed Chair Jerome Powell was peppered with questions about whether the US economy was in or on the cusp of a recession – a notion he rejected because US firms continue to hire in excess of 350,000 additional workers each month.

“I do not think the US is currently in a recession,” he told reporters, citing an unemployment rate that is still near a half-century low and solid wage growth and job gains. “It doesn’t make sense that the US would be in recession.”

But the 75-basis-point rate increase announced by the Fed on Wednesday, coupled with earlier actions in March, May and June, has now jacked the central bank’s overnight interest rate from near zero to a level between 2.25% and 2.50%. That is the fastest tightening of monetary policy since former Fed Chair Paul Volcker battled double-digit inflation in the 1980s.

Powell was clear that a third, “unusually” large three-quarter-point rate increase is possible at the Fed’s next meeting. But he was clear that we have a long time between now and then, and officials will be watching each new piece of data as they make decisions.

Powell said that he thinks a slowdown is not assured, though he highlighted that it may be difficult to lower inflation without one and noted that the path toward avoiding such a downturn has “narrowed.”

Read: Sailing through inflation wave | By Frank F Islam, US

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