US Fed announces biggest interest rate hike since 1994

WASHINGTON: The Federal Reserve announced the most aggressive interest rate increase in nearly 30 years, raising the benchmark borrowing rate by 0.75 percentage points on Wednesday as it battles against surging inflation.

The Fed’s policy-setting Federal Open Market Committee reaffirmed that it remains “strongly committed to returning inflation to its 2 per cent objective” and expects to continue to raise the key rate.

Until recently, the central bank seemed set to approve a 0.5 percentage-point increase, but economists say the rapid surge in inflation put the Fed behind the curve, meaning it needed to react strongly to prove its resolve to combat inflation

The super-sized move was the first 75-basis-point increase since November 1994.

Fed Chair Jerome Powell will hold a press conference after the meeting to provide more details on the central bank’s plans, which will be closely watched for signals on how aggressive policymakers will be in coming meetings.

Committee members now see the federal funds rate ending the year at 3.4 per cent, up from the 1.9 per cent projection in March, according to the median quarterly forecast.

They also expect the Fed’s preferred inflation index to rise to 5.2 per cent by the end of the year, with GDP growth slowing to 1.7 per cent in 2022 from the previous 2.8 per cent forecast.

The FOMC noted that effects of Russia’s invasion of Ukraine are “creating additional upward pressure on inflation and are weighing on global economic activity.”

And ongoing COVID-19 lockdowns in China “are likely to exacerbate supply chain disruptions.”

Kansas City Federal Reserve Bank President Esther George, a noted inflation-hawk, dissented from the committee vote, preferring a smaller, half-point increase.