The Federal Reserve on Wednesday raised short-term interest rates by 0.50 percent as part of an effort to tamp down the inflationary pressures weighing on Americans.
The central bank suggested that it will further raise borrowing costs throughout this year as it attempts to undo its pandemic-era, easy money policies. The policy-setting Federal Open Market Committee (FOMC) also detailed plans on unwinding its nearly $9 trillion balance sheet.
The decision to raise rates by 0.50 percent marked the most aggressive increase made in a single meeting since May 2000. Over the last two decades, the Fed has opted to raise interest rates only in increments of 0.25 percent, with the latest move underscoring the severity that inflation poses at the moment.
“The Committee is highly attentive to inflation risks,” the FOMC said in its updated policy statement.
The Fed is now targeting interest rates in a range between 0.75 percent and 1 percent, with some Fed officials advocating for raising the target closer to 2.5 percent by the end of the year.
Fed hikes bleed through the economy in the form of higher interest rates on credit products like credit cards, mortgages, and business loans. Since the Fed’s first post-COVID interest rate hike in mid-March, 30-year fixed mortgage rates have risen by a full percentage point, to over 5 percent.
The Fed statement noted that it is paying attention to a number of geopolitical risks, noting that COVID-related shutdowns in China are “likely to exacerbate supply chain disruptions.” The FOMC said it is continuing to monitor the economic implications of the invasion of Ukraine by Russia, which may add “additional upward pressure” on inflation.
The decision was unanimously agreed to among the voting members of the committee.
Click here to read the full report from Brian Cheung at Yahoo Finance.
