Fed Hikes Interest Rates By 0.75% In Boldest Move Since 1994
On Wednesday (Thursday, June 16, 2022, in Manila), the Federal Reserve raised interest rates by three-quarters of a percentage point in an aggressive move to combat white-hot inflation that is wreaking havoc on the economy, frustrating consumers, and stifling the Biden administration.
Photo Insert: After a disastrous inflation report on Friday revealed that price increases are spreading throughout the economy, expectations for a more dramatic rate hike increased.
It is the largest rate increase since 1994, and it will affect millions of American businesses and households, raising the cost of borrowing for homes, cars, and other loans in order to force an economic slowdown, according to Nicole Goodkind of CNN Business.
Until this week, economists and investors expected the Fed to raise its key interest rate by half a point, the second such increase in the previous 22 years.
However, after a disastrous inflation report on Friday revealed that price increases are spreading throughout the economy, expectations for a more dramatic rate hike increased.
In a post-meeting news conference, Federal Reserve Chairman Jerome Powell acknowledged that a three-quarter-point rate hike "is an unusually large one." While Fed officials "do not expect moves of this size to be common," Powell said, he noted that the central bank would likely discuss raising rates by 75 basis points or just 50 basis points at its next meeting, on July 26-27.
According to a statement released Wednesday by the Federal Open Market Committee (FOMC), the central bank's voting arm, 10 of 11 voting members supported the hike. Kansas City Fed President Esther George was the lone dissenter, voting for a half-point increase.
The US stock market rallied after the announcement, with the Dow up more than 500 points as investors interpreted the central bank's actions as a solid commitment to bringing down inflation.
"It was what everyone was expecting," said Jeffrey Frankel, co-president at Stuart Frankel & Co. "What Powell is saying after the announcement, that he will be flexible about future rate hikes, the market seems happy at the moment."
Americans are facing rising costs from the grocery store to the gas pump, and the Fed is tasked with keeping prices stable. Soaring food and gas prices, which have reached a series of daily record highs in the last month, have resulted in the lowest consumer sentiment since 1952.