US Fed hikes interest rate by 0.75% to tame inflation

The rate hike, the biggest by the US central bank since 1994, follows a continued rise in inflation rate.

The Federal Open Market Committee (FOMC) at its meeting decided to raise the target range for the federal funds rate to 1.50 to 1.75 per cent from he existing levels of 0-0.75 per cent in view of th rising inflation.

The Fed anticipates that ongoing increases in the target range will be appropriate to achieve maximum employment while keeping inflation at the rate of 2 per cent over the long run. 

In addition, the committee proposed to continue reducing the Fed’s holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the plans for reducing the size of the Federal Reserve's balance sheet that were issued in May. 

In assessing the appropriate stance of monetary policy, the committee said it would continue to monitor the implications of incoming information for the economic outlook and remain prepared to adjust the stance of monetary policy as appropriate if risks to economy emerge.

Fed said overall economic activity in the United States appeared to have picked up after edging down in the first quarter. 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.

The Fed noted that the invasion Ukraine by Russia 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, it added.