US Federal Reserve makes historic interest hike to combat inflation, may repeat in July
- The 0.75-percentage-point increase is the biggest since 1994, with the central bank’s chief saying another big raise could come next month to cool prices
- Stocks climbed, US Treasury yields tumbled and the dollar pushed lower following the decision
The Federal Reserve raised interest rates by three-quarters of a percentage point – the biggest increase since 1994 – and Chair Jerome Powell said officials could move by that much again next month or make a smaller half-point increase to get inflation under control.
Slammed by critics for not anticipating the fastest price gains in four decades and then for being too slow to respond to them, Chairman Jerome Powell and colleagues on Wednesday intensified their effort to cool prices by lifting the target range for the federal funds rate to 1.5 per cent to 1.75 per cent.
“I do not expect moves of this size to be common,” he said at a press conference in Washington after the decision, referring to the larger increase. “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.”
Officials projected raising it to 3.4 per cent by year-end, implying another 1.75 percentage points of tightening this year.
Stocks climbed, Treasury yields tumbled and the dollar pushed lower following the decision, which was more hawkish than the 0.5-percentage-point shift previously signalled by Powell. The Fed changed tack after a run of data showed inflation and expectations for it accelerating.
The median prediction of officials was for a peak rate of 3.8 per cent in 2023, and five forecast a federal funds rate above 4 per cent; the median projection in March was for 1.9 per cent this year and 2.8 per cent next. Traders in futures markets were betting on a peak rate of about 4 per cent ahead of the release.