After weeks of speculation the Federal Reserve raised interest rates by three-quarters of a percentage point on Wednesday, setting a more aggressive stand to tame inflation.
Analysts and investors had expected a half a point increase for weeks, however, an alarming report on inflation released last Friday forced the Central Bank to decide on the largest rate hike since 1994.
“From the perspective of today, either a 50 basis point or a 75 basis point increase seems most likely at our next meeting,” Federal Reserve Chair Jerome Powell said Wednesday at the press conference after the announcement. “We anticipate that ongoing rate increases will be appropriate.”
Besides controlling skyrocketing inflation that keeps hurting American families, the Fed’s decision will also impact businesses and households, increasing the cost of borrowing for homes, cars and other loans.
After the long-awaited decision, the benchmark rate was set to a range of 1.5%-1.75%, the highest before the Covid pandemic began in March 2020.
The Fed has struggled to keep prices stable., even slashing its interest rate to zero. The “easy money” policy encouraged spending but also fed inflation.
According to the “dot plot” of members’ expectations, the Fed’s benchmark rate will end the year at 3.4%, up 1.5 percentage points from the March estimate.
Also, officials now anticipate a 1.7% increase for the 2022 GDP, down from the 2.8% estimated in March.