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Fed Hikes Interest Rates By 0.75 Point

1_INTEREST.RATES

The Federal Reserve yesterday increased the federal funds rate by 0.75 percentage point to a new range of 1.5 to 1.75 percent, just days after a monthly inflation measure rose to its highest in four decades.

“Overall economic activity appears to have picked up after edging down in the first quarter,” the Fed wrote yesterday in its Open Market Committee statement. “Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply-and-demand imbalances related to the pandemic, higher energy prices and broader price pressures.”

During a subsequent press conference, chairman Jerome Powell said the Fed will keep increasing rates until there are multiple consecutive months of lower inflation. Powell said the next rate hike would likely be 0.50 or 0.75 percentage point.

Last Friday, the Department of Labor reported a Consumer Price Index for May that was 8.6 percent higher than May 2021. That inflation rate exceeded expectations and prompted the Fed to move rates up by 75 basis points instead of the previously expected 50 basis points, Powell said.

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