The Federal Reserve raised interest rates by three-quarters percentage points on Wednesday and continued its aggressive campaign to cool rapid inflation as the economy began to slow.
The central bank unanimously voted for unusually large interest rate movements, and the Federal Open Market Committee, a policy-making federal open market committee, signaled more to come in a post-meeting statement Wednesday, saying, “Continuous target range. Increase is appropriate. “
The Fed’s policy rate, which permeates the economy as a whole to influence other borrowing costs and curb growth, is currently set in the range of 2.25 to 2.5 percent.
The Federal Reserve began raising interest rates from near zero in March, and policymakers have been accelerating since then. After making a quarter point move towards the start, they rose 0.5 points in May and three quarters in June. This was the biggest single step since 1994.
The Federal Reserve Board made its second super-massive increase on Wednesday. They are urgently working to bring the unusually rapid inflation back under control.
Officials acknowledged in a statement that spending and production data had “softened”, but employment growth was “strong” and prices continued to rise rapidly, “pandemic-related supply and demand.” It is higher, reflecting the imbalance of. ” Food and energy prices, and broader price pressure. “
Consumer prices have risen 9.1% in the year to June, and central banks are nervous that after a sharp rise in costs over a year, Americans may begin to expect inflation to continue. Inflation becomes a more lasting feature of the economy as people and businesses begin to adjust their behavior in anticipation of rising prices, as workers demand higher wages and businesses pass on climbing costs and expenses to customers. There is a possibility of becoming.
The United States is not the only country campaigning against sharp price increases. Inflation is accelerating around the world as pandemics disrupt supply chains and the Russian war in Ukraine disrupts fuel and food markets. Many central banks are raising interest rates rapidly to slow down their economies, hoping to bring prices back under control.
Higher interest rates work to slow inflation by cooling demand. When it costs more to borrow money, fewer people borrow a mortgage or business loan to buy a home to expand their company. With less economic activity, the supply of available goods and services can catch up with demand. Also, as businesses face lower profits and sales and fewer employees, employment and wage growth slows and consumption becomes even heavier.
Slowing down the economy is a painful process and often increases the unemployment rate. The Fed itself acknowledges that its tools are sluggish and that the fight to control inflation risks putting the economy into a complete recession.
