The United States Federal Reserve on Wednesday increased its interest rate by 75 basis points to 1.75% in an attempt to control inflation, Reuters reported. This is the biggest hike by the country’s central bank in 28 years.
The Federal Reserve had previously raised the interest rate by 25 basis points in March and by 50 basis points in May, CNBC reported.
The latest hike comes five days after the country’s labour department said that inflation in the United States was at a four-decade high of 8.6% driven by high fuel and housing prices, Bloomberg reported.
Federal Reserve Chair Jerome Powell said that the central bank was committed to bringing inflation down to its target rate of 2%, the Associated Press reported.
“We thought strong action was warranted…and we delivered that,” Powell said during a press conference. “We are not trying to induce a recession now. Let’s be clear about that.”
More hikes could be announced in the coming months, he added.
“Clearly, today’s 75 basis point increase is an unusually large one and... either a 50-basis-point or a 75-basis-point increase seems most likely at our next meeting [in July],” Powell said, according to AFP.
Wells Fargo & Co, a financial services company, said that a “mild recession” could start from mid-2023, as inflation has affected customers’ spending power.
Meanwhile, Moody’s Analytics said that the higher interest rates could damage the economy, Bloomberg reported.
“The Federal Reserve is going to hike interest rates until policymakers break inflation, but the risk is that they also break the economy,” Ryan Sweet, Moody’s Analytics head of monetary policy research, said in a research note. “Growth is slowing and the effect of the tightening in financial market conditions and removal of monetary policy have yet to hit the economy.”
However, markets in the United States fared well after Powell’s announcement.
On Wall Street, the S&P index ended up 54.51 points or 1.46% higher, according to Financial Times. Nasdaq Composite also witnessed an increase of 270 points or 2.50% as markets closed for the day.
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