Fed raises benchmark rate by 0.75% in significant escalation in fighting inflation


The Federal Reserve on Wednesday imposed a dramatic rate hike, the latest in a series of rises in borrowing costs, as the central bank tries to reverse near-historic inflation while avoiding an economic downturn.

The Fed raised the benchmark rate by 0.75%, repeating the same hike it had imposed at each of its last two meetings. Prior to this year, the Fed last made a hike of this magnitude in 1994.

The move comes just over a week after a higher-than-expected inflation report showed prices rose slightly in August, exacerbating costs for U.S. households and the S&P500 tumbles for worst day of 2022.

The Fed has proposed a series of aggressive rate hikes in recent months in an effort to mitigate price increases by slowing the economy and dampening demand. But the approach threatens to plunge the US into recession and put millions out of work.

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“Inflation remains high on the back of supply and demand imbalances related to the pandemic, higher food and energy prices and broader price pressures,” the Federal Reserve said in a statement Wednesday.

“Recent indicators point to modest growth in spending and output. Job growth has been strong in recent months and unemployment has remained low,” the statement said.

Hours before the rate hike announcement, top executives at some of the largest U.S. banks sounded the alarm about skyrocketing inflation in testimony to Congress, warning that price hikes would require further increases in the Federal Reserve’s borrowing costs, which will slow the economy. and widespread financial pain.

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Earlier this month, at a conference held by the conservative Cato Institute, Fed Chair Jerome Powell said the central bank must act “outright and forcefully” to curb inflation.

A sign displays gas prices at a gas station in Falls Church, Virginia, July 19, 2022.

Saul Loeb/TSWT via Getty Images, FILE

However, the interest rate hikes have produced mixed results. On an annual basis, consumer prices have fallen slightly, but are still very high.

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The consumer price index rose 8.3% from August last year, a slight slowdown from 8.5% in July, according to the Bureau of Labor Statistics.

However, some prices have already fallen significantly. Gas prices fell by 10.6% in August, the agency said.

Meanwhile, rate hikes seem to have slowed down key sectors of the economy, pushing up mortgage rates, for example, and slowing down new home construction.

Still, other indicators point to the US economy continuing to hum.

According to data released by the Bureau of Labor Statistics in early September, the number of workers in the US declined at a breakneck pace, but remained robust in August.

Wednesday afternoon, immediately after the rate hike announcement, each of the major stock indices had fallen slightly.


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