The U.S. Federal Reserve raised its target interest rate by three-quarters of a percentage point to combat a disruptive rise in inflation. While also forecasting a weakening economy and growing unemployment in the months ahead.
This was disclosed via a press release titled ”Federal Reserve issues FOMC statement”. The rate hike is the biggest by the Federal Reserve since 1994.
Officials from the United States’ central bank hinted at a speedier path of borrowing cost hikes ahead. Aligning monetary policy more closely with a swift shift in financial market estimates.
What the FED is saying
The Federal Open Market Committee, raised its benchmark funds rate to 1.5% -1.75%, the highest level.
Officials also significantly cut their outlook for 2022 economic growth. Now anticipating just a 1.7% gain in GDP, down from 2.8% in March.
The statement was approved by all FOMC members except for Kansas City Fed President, who preferred a smaller half-point increase. The Fed’s move comes with inflation running at its fastest pace in more than 40 years.
What you should know
The policy tightening is happening with economic growth already tailing off while prices still rise, a condition known as stagflation.
The Apex Banks use the rate as a benchmark for what they charge each other for borrowing. However, it feeds directly through to a multitude of consumer debt products.
Inflation as measured by the consumer price index rose 8.6% on a yearly basis in May. The University of Michigan consumer sentiment survey hit an all-time low that included sharply higher inflation expectations. Average hourly earnings have been rising in nominal terms, but when adjusted for inflation, have fallen 3% over the past year. The committee projections released Wednesday to see the unemployment rate, currently at 3.6%, moving up to 4.1% by 2024.
-Nairametrics.
