Federal Reserve Announces Biggest Interest Rate Hike in 28 Years to Combat Inflation

The Federal Reserve on Wednesday raised interest rates by 0.75%, the largest increase since 1994, The New York Times reports.

Federal Reserve Chairman Jerome Powell suggested that Wednesday’s rate hike may be followed by a similar one next month.

Powell suggested that the Fed is looking at another hike between 0.5% and 0.75% in July but added that he does “not expect moves of this size to be common.”

Officials expect interest rates to rise to 3.4% by the end of the year, the highest level since 2008.

The rate may go even higher to 3.8% by the end of next year, economists project.

Fed seeks to impose economic pain:

The goal is effectively to try to tame inflation by increasing economic pain. The rate increase will make it more difficult to buy homes and grow businesses by restraining spending.

Officials expect growth to sag as a result and predicted that unemployment could rise as well.

Powell acknowledged that it is difficult to try to curb inflation without risking a recession, particularly given the war in Ukraine and factory shutdowns in China.

 “We’re not trying to induce a recession right now, let’s be clear about that,” Powell said, before adding that pathways to a “soft land” have “become much more challenging due to factors that are outside of our control.”

Recession coming?

Economists worry that even Powell’s acknowledgment that a soft landing may be difficult may be downplaying the situation.

“The Fed is becoming a bit more realistic about how difficult it is going to be to lower inflation without inflicting damage on the labor market,” Sarah House, a senior economist at Wells Fargo, told the Times. “There is that growing acknowledgment that a soft landing is increasingly difficult — I still think they’re painting a fairly rosy picture.”


Related News