The US Federal Reserve (Fed, banco central)”strongly determined to bring inflation to its annual target of 2%,” increased its rates benchmark interest rate by three-quarters of a percentage point on Wednesday, the biggest increase since 1994, according to an official statement.
This is the third consecutive increase and takes reference rates to a range of 1.5-1.75%.
The agency also increased its inflation forecast for 2022 to 5.2%. and cut its growth forecast to 1.7% at the end of a two-day meeting of its monetary policy committee.
The prospect of a larger increase has roiled markets since last week, following May inflation data released on Friday.
The data on consumer prices accounted for a record increase in 40 years in the 12-month measurement, with 8.6%.
The markets and some economists quickly concluded that rates could also rise more than expected, not half a percentage point (or 50 basis points), but three-quarters of a point (75 basis points), how it finally happened.
This is the largest rate increase in more than 27 years.
“We are very hopeful that the Fed will only raise 50 basis points today, but the market and media frenzy over the past few days…obviously makes 75 basis points much more likely,” he lamented before the meeting. announced economist Ian Shepherdson of Pantheon Macroeconomics in a research note.
Credibility at stake
Guideline rate hikes they increase the cost of the loans that commercial banks grant to their clients.
The Fed is struggling even more to curb inflation because its credibility is at stake. Its officials claimed for months that this price increase would only be temporary, and therefore they only began to tighten the screws in March.
“In hindsight, … it probably would have been better to raise rates sooner,” the agency’s president, Jerome Powell, admitted last month in an interview with The Wall Street Journal.
Secretary of the Treasury Joe Biden, Janet Yellenalso admitted that he had not anticipated this price increase.
The Fed is independent of the federal government, but Powell was recently hosted by Biden at the White House, along with Yellen, for a rare meeting dedicated to the inflation.
The Fed must, on the other hand, be careful about deliberately slowing down the economy, lest it plunge it into a recession.
The Fed’s Monetary Committee is meeting for the first time since Powell officially began his second term on May 23 and Lael Brainard became vice president of the institution. This meeting also marks the arrival of two new governors, Lisa Cook and Philip Jefferson to the body.
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