6/16/22 - Fed Increases Interest Rates

Fed tries to curb rate of inflation by raising interest rates, and more are expected.

(ABC NEWS) - The Federal Reserve is working to dial back inflation and decided to raise interest rates significantly on Wednesday, hiking it 0.75%.

The rate hike of 0.75% marks the largest increase since 1994. The dramatic rate increase follows new inflation data that showed a reacceleration of price increases to levels not seen for more than four decades, dashing hopes that inflation had reached its peak.

“We at the Fed understand the hardship that high inflation is causing and we’re strongly committed to bringing inflation back down,” Federal Reserve Chair Jerome Powell said on Wednesday.

The Federal Reserve “anticipates ongoing increases” in its benchmark interest rate, he added.

A rate hike of 0.75% brings the interest rate to a range of 1.5% to 1.75%

"The invasion of Ukraine by Russia is causing tremendous human and economic hardship," the Federal Reserve said in a statement on Wednesday. "The invasion and related events are creating additional upward pressure on inflation and are weighing on global economic activity. In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions."

"The Committee is highly attentive to inflation risks," the central bank added.

The Fed also indicated that more rate hikes will follow in the coming months.

An increase to the benchmark interest rate raises borrowing costs for consumers and businesses, which in theory should slash inflation by slowing the economy and eating away at demand. But the strategy also risks tipping the economy into a recession. The rate hike will likely increase everything from credit card fees to mortgage rates.