The Federal Reserve has delivered the largest interest rate hike since 1994 in a bid to slow inflation.
Officials agreed to raise the benchmark interest rate by three-quarters of a percentage point on Wednesday at the end of a two-day policy meeting.
The aggressive move will affect customer and business loans, from 1.5% to 1.75%, and is expected to drive up the cost of borrowing for homes, cars and other items.
‘We’re strongly committed to bringing inflation back down. And we’re moving expeditiously to do so,’ stated Federal Reserve Chairman Jerome Powell after the policy meeting.
‘It is essential that we bring inflation down if we were to have a sustained period of strong labor market conditions.’
Powell warned that more interest rate hikes could be on the horizon and that inflation could also rise.
‘Inflation has obviously surprised to the upside over the past year, and further surprises could be in store,’ he said. ‘We therefore will need to be nimble in responding to incoming data.’
The Federal Reserve has been incrementally increasing interest rates in order to try to lower inflation, which is up 8.6% from a year ago.
Powell said that the Federal Reserve wants to return to its pre-pandemic 2% rate, but that ‘ongoing increases’ in the rate may be appropriate.
‘Clearly today’s 75 basis point increase is an unusually large one and I do not expect moves of this size to be common,’ Powell said. ‘From the perspective of today, either a 50 basis point or a 75 basis point increase seems most likely at our next meeting. We will, however, make our decisions meeting by meeting.’
The next meeting is in July.
Powell tried to assure investors and Americans that the Fed ‘has the tools we need and the resolve it will take’ to bring down inflation.
‘In the current highly unusual circumstances with inflation, well above our goal, we think it’s helpful to provide even more clarity than usual,’ he said.
Stocks rose after the central bank’s decision, but quickly gave up some of their gains. The Dow bounced back after going into negative territory, while the S&P 500 was up 0.5%. The Nasdaq gained 1.1%.
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