WASHINGTON: The Federal Reserve announced the most aggressive interest rate increase in nearly 30 years, raising the benchmark borrowing rate by 0.75 percentage points on Wednesday (Jun 15) as it battles against surging inflation.
The super-sized 0.75-percentage-point hike came with the Fed under intense pressure to curb soaring gas and food prices that have left millions of Americans struggling to make ends meet and sent President Joe Biden’s approval ratings plunging.
Fed Chair Jerome Powell said it was “essential” to lower inflation, and policymakers “have both the tools we need and the resolve it will take to restore price stability on behalf of American families.”
He stressed that the goal is to achieve that without derailing the US economy but acknowledged there is always a risk of going too far.
The Fed’s policy-setting Federal Open Market Committee raised the benchmark borrowing rate to a range of 1.5 to 1.75 per cent, up from zero at the start of the year.
It was the first 75-basis-point increase since November 1994.
Powell told reporters the move was “an unusually large one,” but he does not expect “moves of this size to be common.”
However, “from the perspective of today, either a 50-basis-point or a 75-basis-point increase seems most likely at our next meeting,” he said.
“It is essential that we bring inflation down if we are to have a sustained period of strong labour market conditions that benefit all.”
Biden has endorsed the Fed’s effort and is hoping for success as his Democrats face the possibility of losing control of Congress in key midterm elections in November.
He has blamed opposition Republicans for blocking bills meant to help lower costs and ease supply constraints.
White House economic adviser Brian Deese told Fox News “the most constructive steps that Congress and the executive branch can take to help support what the Fed is trying to do are to lower the cost that families face directly and to lower the federal deficit.”