In a historic move, US Federal Reserve raises interest rate by 0.75% again

On Wednesday, the United States Federal Reserve raised interest rates again making it the fourth straight increase of 0.75% in a bid to combat inflation in the country which remains at a four-decade-high.

In a statement, the central bank said, “Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures,” while reiterating its commitment to returning inflation to its 2% objective. This comes after the two-day meeting of the Federal Open Market Committee (FOMC).

The interest rate affects the cost of borrowing and investment in the economy which the Federal Reserve has been increasing since March in a bid to slow the economy down and bring down the soaring inflation in the country. This rate hike marks the central bank’s sixth consecutive increase just this year.

ALSO READ:US Federal Reserve hikes interest rates to highest level since 2008

The policy decision set the target federal funds rate in a range between 3.75%-4% which is the highest since 2008. The Fed’s policy tightening has sparked a debate about its impact on the US and world economies, additionally, many fear that any further hikes could stress the financial system or even trigger a recession.

“Ongoing increases in the target range will be appropriate,” said the FOMC, indicating that they are “highly attentive” to the risks inflation poses which means that there could be further hikes in the future. This comes as the rate of inflation is at least triple the central bank’s target which has led them to increase rates marking the fastest rounds of increase since the 1980s.

Fed Chairman Powell: chances of‘soft landing’ for economy have‘narrowed’

Federal Reserve Board Chairman Jerome Powell addressed a news conference after the closing of the two-day meeting and said that the “ultimate level” of the central bank’s benchmark policy rate is higher than previously anticipated. Furthermore, chances for the so-called “soft landing” for the economy have “narrowed” but are “still possible”, said Powell.

ALSO READ:Federal reserve raises rates by 75 basis-point, most aggressive rate hike since 1994

While investors have supposedly been speculating about the 75-basis point rate hike, they had been anticipating a decrease in the rate hikes after its meeting in December. After the speech, US stocks reportedly went volatile with Dow falling more than 500 points, S&P 500 sinking by 2.5% and the Nasdaq Composite fell 3.4%, as of Wednesday, reported CNN.

(With inputs from agencies)

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