WASHINGTON: In an effort to quell the most intense breakout of inflation since the 1980s, the Federal Reserve increased its benchmark overnight interest rate by three-quarters of a percentage point on Wednesday. “Ongoing increases” in borrowing costs are still expected, despite signs that the economy is slowing down.
The Federal Open Market Committee unanimously decided to hike the policy rate to a range of 2.25 percent to 2.50 percent, noting that “inflation remained elevated, reflecting supply and demand imbalances associated with the pandemic, increasing food and energy prices, and broader pricing pressures.”
The new policy statement from officials noted that “recent indices of spending and production have declined,” despite the fact that job growth has remained “strong,” a pointer to the reality that the substantial rate hikes they have implemented since March are starting to take effect.
The Fed has increased its policy rate by 225 basis points in total this year, on top of a 75-basis-point increase last month and smaller increases in May and March, as it fights an inflation breakout on a par with the 1980s with monetary policy modelled after the 1980s.
