The US Federal Reserve raised the federal funds rate by three-quarters of a percentage point on Wednesday afternoon. The central bank’s move follows last week’s consumer price index (CPI) report, which showed US inflation rose 8.3 percent year-on-year.
Fed raises federal funds rate by 75bps, expects ‘further hikes’
On September 21, 2022, the US central bank and Fed Chairman Jerome Powell raised the benchmark bank rate by 75 basis points (bps). The Fed’s federal funds rate is currently hovering at 3.25 percent. The decision follows the latest CPI report published by the US Bureau of Labor Statistics and federal officials like Powell have suggested the US economy may be feeling “some pain”.
The Fed’s 75bps rate hike is the third three-quarters of a percentage point increase in a row. At the time of the latest rate hike, Sen. Elizabeth Warren (D-Mass.) said the central bank “could cause a catastrophic recession” if the Fed was not careful.
Ahead of July’s 75bps rate hike, the US central bank raised the federal funds rate by three-quarters of a percentage point on June 15, 2022. It is the largest increase in the federal funds rate since 1994, when Alan became the 13th chairman of the Federal Reserve. Greenspan hiked 75bps that year.
On Wednesday, the Fed said: “The committee aims to achieve the highest level of employment and inflation at a pace of 2 percent over the long term.” To support these goals, the Committee decided to raise the target range for the federal funds rate to 3 to 3-1/4 percent, and continued increases in the target range are expected to be appropriate.
The federation added:
The Committee’s assessments take into account a range of information, including public health, labor market conditions, inflation and inflation expectations, and financial and international developments.
Many investors and economists believe that the price hike has already been bought by the markets. Before the Fed’s three-quarters of a percentage point hike, few economists and analysts predicted there was little chance the US central bank would raise rates by a full percentage-point (100bps).
What do you think about raising the federal funds rate by 75bps on Wednesday afternoon? Let us know what you think about this in the comments section below.
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