Federal Reserve Announces Biggest Interest Rate
Federal Reserve announces biggest interest rate hike since 2000
On Wednesday, the Federal Reserve announced the steepest increase in interest rates in over 20 years in order to combat rising inflation in the United States.
The Federal Reserve hiked its benchmark interest rate by 0.5 percentage points to a target rate range of 0.75 percent to 1%. The rise is the biggest since 2000, and it comes after a 0.25 percentage point raise in March, the first since December 2018.
More rate hikes are predicted in the future. The Fed is expected to hike rates seven times in 2022, hitting 2.9 percent in early 2023, according to the Economist Intelligence Unit. Officials also expect to reduce their $9 trillion asset portfolio starting in June, a strategic move that would raise borrowing prices even further.
Although “overall economic activity eased down in the first quarter,” the Fed stated in a statement, “household consumption and corporate fixed investment remained solid.” However, it warned that inflation “remains higher,” the invasion of Ukraine has “very unknown” ramifications for the US economy, and Covid-related supply chain delays in China “are expected to worsen supply chain disruptions.”
When the epidemic reached the United States in March 2020, rates were slashed to near zero, but they were already low, and years of low rates had left the United States and other nations unprepared for a rapid surge in inflation. The Fed had rejected growing prices as “transitory” until recently, expecting them to decline as economies recovered from the epidemic.
All of that has changed now. Last month, Fed Chair Jerome Powell made the case for faster rate hikes, saying, “It’s very vital to maintain price stability.” Without pricing stability, economies cannot function.”
Inflation in the United States is at a 40-year high, thanks in large part to the coronavirus’s extraordinary impact on the global economy. The Consumer Price Index (CPI) was 8.5 percent higher in March than a year before, owing to increased fuel, lodging, and food prices. The rising costs of basic goods and services are now outpacing typical pay increases.
Jamie Dimon, the CEO of JP Morgan Chase, cautioned ahead of the announcement that the Fed may have delayed too long to hike rates. He told Bloomberg, “We’re a bit late.” “It’s best if they move as soon as possible.”
The Fed’s approach is already having an influence on the economy as a whole. Mortgage rates have risen over two percentage points since the beginning of the year, the quickest in decades. As a result, several hot real estate markets have begun to cool. Stock market selloffs have been sparked by the impact of tighter monetary policy.
Powell will hold a press conference on Wednesday afternoon to discuss the Fed’s decision.
