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Federal Reserve Announces Largest Interest Rate Hike in 28 Years, Citing High Inflation

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The Federal Reserve announced on Wednesday it is raising its key interest rate by three-quarters of a point — the largest increase in nearly three decades.

The move is intended to fight the skyrocketing prices Americans have endured under President Joe Biden, the central banking system’s board of governors said in a news release.

“Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures,” it said.

To combat rising prices, the board, headed by Chairman Jerome Powell, decided Wednesday to lift the target range for the federal funds rate to between 1.5 percent and 1.75 percent. That marked the largest increase since 1994, the second year of Bill Clinton’s presidency.

The Federal Reserve said that in addition to the Wednesday changes, it “anticipates that ongoing increases in the target range will be appropriate” to meet its long-term goal of reaching maximum employment and inflation at the rate of 2 percent.

“We thought strong action was warranted at this meeting, and we delivered that,” Powell said during a Wednesday news conference, The Associated Press reported.

“I do not expect moves of this size to be common,” Powell said during the briefing, according to Bloomberg.

“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,” he said.

The Wednesday decision came after the Labor Department announced Friday that the consumer price index, a measure of inflation, had increased by 8.6 percent from May 2021 to May 2022.

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It said that was “the largest 12-month increase since the period ending December 1981.”

The national average gas price has soared past $5 per gallon for the first time, standing at $5.014 as of Wednesday, according to AAA.

California continues to face the nation’s highest gas prices, with gasoline selling for an average of $6.435 per gallon in the Golden State.

The stock market experienced an increase in share prices following news of the interest rate hike, The Wall Street Journal reported.

The S&P 500 rose by 1.4 percent, the Dow Jones Industrial Average by 274 points and the Nasdaq Composite by 2.3 percent.

Related:
Federal Reserve Announces Unusually Large Interest Rate Cut for First Time in Years

“Markets are pricing in a Fed that’s trying to get in front of the curve rather than behind the curve on inflation,” National Securities Chief Market Strategist Art Hogan told the outlet.

The Federal Reserve’s actions are expected to trigger higher unemployment.

During the news conference, Powell acknowledged that it would be hard for the Fed to clamp down on inflation without putting people out of work, the Wall Street Journal reported.

In the following week, the Fed chairman will testify before Congress, where he is expected to be questioned about the board’s actions during the current economic crisis, Bloomberg reported.

The high inflation in recent months has given rise to fears of recession and stagflation — a dangerous combination of soaring prices and low economic growth.

“Even if a global recession is averted, the pain of stagflation could persist for several years, with potentially destabilizing consequences for low- and middle-income economies – unless major supply increases are achieved,” World Bank Group President David Malpass said in a commentary Monday in Canada’s Globe and Mail adapted from the group’s June Global Economic Prospects report.

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News reporter and international affairs analyst published and syndicated in over 100 national and international outlets, including The National Interest, The Daily Caller, and The Western Journal. Covers international affairs, security, and U.S. politics. Master of Arts in Security Policy Studies candidate at the George Washington University Elliott School of International Affairs
News reporter and international affairs analyst published and syndicated in over 100 national and international outlets, including The National Interest, The Daily Caller, and The Western Journal. Covers international affairs, security, and U.S. politics. Master of Arts in Security Policy Studies candidate at the George Washington University Elliott School of International Affairs. Follow Andrew on Twitter: @RealAndrewJose
Education
Georgetown University, School of Foreign Service
Location
Washington, District of Columbia
Languages Spoken
English, Spanish, Tamil, Hindi, French, Russian
Topics of Expertise
International Politics, National Security, U.S. Politics




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