Last Updated on June 15, 2022
In an announcement Wednesday, the Federal Reserve raised its key interest rate by three-quarters of a point, its largest hike in nearly three decades. The move the Fed announced after its latest policy meeting will raise its benchmark short-term rate, which affects many consumer and business loans, to a range of 1.5% to 1.75%, according to the Associated Press.
Policymakers expect their key rate to reach a range of 3.25% to 3.5% by the end of the year — the highest level since 2008 — meaning that most forms of borrowing will become sharply more expensive.
The latest efforts from the Federal Reserve come as policymakers aim to tackle surging inflation, which recently reached a four-decade high of 8.6%.
Federal Reserve Chair Jerome Powell previously suggested that a half-point hike could be announced this week. The increase of three-quarters of a point exceeded expectations and comes as more Americans expect inflation to last for the foreseeable future.
“The Fed’s decision to impose a rate hike as large as it did Wednesday was an acknowledgment that it’s struggling to curb the pace and persistence of inflation,” the AP reported.
Powell said that another three-quarter-point hike is possible at the Fed’s next meeting in late July, if inflation continues to climb.
When asked why Wednesday’s hike was higher than expected, Powell said that the latest data had shown inflation to be more intense than expected. The public’s anticipation of lasting inflation has also accelerated, he added.
“We thought strong action was warranted at this meeting,” Powell said.
According to Powell, the Federal Reserve has set an inflation target of 2%. When asked if inducing a recession was a worthwhile price to pay for decreased inflation, Powell got defensive. “We’re not trying to induce a recession now,” he said. “Let’s be clear about that. We’re trying to achieve 2% inflation.”
In their updated forecasts Wednesday, the Fed’s policymakers indicated that after this year’s rate increases, they foresee two more rate hikes by the end of 2023, at which point they expect inflation to finally fall below 3%, close to their target level.