The Federal Reserve announced on Wednesday that it would raise interest rates for the first time in three years to combat rising inflation, a move that comes at a critical time for the US economy as it grapples with a lingering pandemic and a European conflict.
The Fed’s widely expected 25-basis-point rate hike puts an end to the ultra-easy monetary policy put in place two years ago to keep the economy afloat during the COVID-19 outbreak.
The rate hike, which brings the federal funds rate to a range of 0.25 percent to 0.5 percent, is anticipated to be the first in a series of rises aimed at taming spiraling inflation.
Following consumer prices reaching a 40-year high, officials predicted six more, similar-sized hikes over the course of 2022, according to new economic projections revealed after the conference. It’s a big change from just six months earlier when half of the central bankers thought interest rate hikes wouldn’t be necessary until at least 2023. Inflation is expected to remain high in 2022, ending at 4.3 percent, much over the Fed’s annual target of 2.3 percent.
“With the appropriate tightening of monetary policy, the committee expects inflation to return to its 2% target and the labor market to continue strong,” the Fed said in a statement released after the meeting. The committee expects “further increases in the target range to be appropriate,” according to the report.
Only one voting member of the Federal Open Market Committee disagreed with the decision: St. Louis Fed President James Bullard, who requested a 50-basis-point hike.