The US central bank showed its determination to reduce the highest rate of inflation in 40 years by raising its own benchmark interest rate in 22 years.
The Federal Reserve raised its benchmark lending rate to a range of 0.75 percent to 1 percent on Wednesday. That’s an increase of half a percentage point from where it was before, and the biggest rate increase since 2000.
Central banks slashed lending rates in the early days of the pandemic to stimulate the economy, but those low rates have been a contributing factor in soaring inflation in recent months.
The US inflation rate is currently 8.5 percent, its highest level since 1981. Canada’s inflation rate is currently 6.7 percent, its highest level in 31 years.
The Fed’s move brings its rate to its highest point since the pandemic began, and while the move was widely expected, it was thought the central bank could act even more aggressively.
In addition to raising rates, the Fed also said it will sell the trillions of dollars of bonds on its books, a move that will also have the effect of making borrowing more expensive.
Several more rate hikes are still expected for the rest of the year, until the inflation rate returns to a range that central bankers are comfortable with, below three percent.