The Federal Reserve raised its benchmark interest rate by three-quarters of a percentage point in its latest move to get ahead of runaway inflation.
The US central bank’s decision was in line with what economists had expected, although some thought the Fed could hike even further, a full percentage point.
Instead, the Fed raised its policy rate by 75 basis points for the third time in a row. The Fed rate is now at its highest point since 2008, and policymakers signal they are not done yet: Officials forecast they will raise their benchmark rate to about 4.4 percent in end of the year, a full percentage point higher than they had. had planned in June.
This aggressive path for rates speaks to the big problem that policymakers think is inflation. Inflation rates have risen to multi-decade highs around the world in recent years, prompting a series of actions by central banks to control it.
Other things being equal, central banks raise their rates when they want to cool an overheated economy, and cut them when they want to stimulate borrowing to grow the economy.
In a news conference following the decision, Fed Chairman Jerome Powell made it clear that the central bank is not afraid to keep rates where they are, or raise them further, for as long as it takes to curb inflation. .
“They want to be very sure that inflation is coming back down” before they contemplate cutting rates again, he said.
The Fed’s move will make it more expensive to take out a mortgage or other forms of borrowing, and will undoubtedly cool consumer spending in the process. The Fed is trying to cool inflation without triggering a recession, and achieving that may be difficult, said Desjardins economist Royce Mendes.
“With the Fed’s laser focused on containing inflation, there is now a greater likelihood that … its aggressive actions will result in a recession,” he said.