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US Federal Reserve raises target interest rate by 75 bps, highest since 1994 US Federal Reserve

US Federal Reserve raises target interest rate by 75 bps, highest since 1994

India Blooms News Service | @indiablooms | 16 Jun 2022, 01:53 am

Wahington: America's central bank Federal Reserve Wednesday increased its target interest rate by three-quarters of a percentage point, and signaled more hikes in the coming months to stem the biting inflation.

The rate hike by 75 basis points is the highest announced by the Fed since 1994.

The Fed had failed to forecast the inflation, and came under the fire of critics, who slammed it for being too slow to respond as fastest price gains in four decades gripped the American economy. 

Chairman Jerome Powell and his colleagues resorted to drastic rate hikes to cool spiraling price rises by lifting the target range for short-term federal funds rate from 1.5 percent to 1.75 percent.

"Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices and broader price pressures," the central bank's policy-setting Federal Open Market Committee said in a statement at the end of its latest two-day meeting in Washington. "The committee is strongly committed to returning inflation to its 2 percent objective."

The statement continued to cite the Ukraine war and China lockdown policies as sources of additional inflation pressures.

They also said it can be raised to 3.4 percent by the end of 2022, which would be a jump of another 175 basis points.

The monetary policy tightening came with a lowering of Fed's economic outlook.

It projected 1.7 percent rate of growth this year, unemployment growing to 3.7 percent by the year-end and continuing to rise to 4.1 percent through 2024. 

None of the Fed officials projected an outright recession but the economic growth forecast neared zero in 2023.

The Fed policymakers had hoped that the inflation would peak this spring, but signs of cooling remain absent till now. Inflation continues to remain at a 40-year high.

Despite the aggressive interest rate measure, policy makers still see inflation measured by the personal consumption expenditures price index at 5.2 percent through 2022 and gradually coming down to 2.2 percent in 2024.