Surging Inflation Makes Biggest Fed Rate Hike Inevitable

The Federal Reserve is expected to announce its largest interest rate hike since 1994 on Wednesday afternoon (Thursday, June 16, 2022, in Manila), a larger increase than previously signaled and a sign that the central bank is struggling to contain stubbornly high inflation, according to Christopher Rugaber of the Associated Press (AP).

Photo Insert: US Federal Reserve Chair Jerome Powell

The central bank is expected to raise its benchmark short-term interest rate by three-quarters of a percentage point, a much larger increase than the typical quarter-point increase, to a range of 1.5 percent to 1.75 percent.

It will also almost certainly forecast further large rate hikes through the end of the year.

A series of significant increases would raise borrowing costs for consumers and businesses, causing an economic slowdown and increasing the risk of a recession. The Fed's previous rate hikes have already raised mortgage rates by about 2 percentage points since the year began, slowing home sales.

Other central banks around the world are also acting quickly to try to cool rising inflation, despite their countries being more vulnerable to recession than the United States.

In July, the European Central Bank (ECB) is expected to raise interest rates by a quarter point, the first increase in 11 years. If record-high inflation persists, it may announce a larger hike in September.

On Wednesday, the ECB pledged to establish a market backstop to protect member countries from financial turmoil similar to that which erupted during a debt crisis more than a decade ago.

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