WASHINGTON: The Federal Reserve on Wednesday announced a quarter-point increase in the benchmark interest rate to bring rising inflation under control, the first rate hike since the start of the COVID-19 pandemic.
The policy-setting Federal Open Market Committee said the fallout from the war in Ukraine is “likely to create additional upward pressure on inflation and weigh on economic activity,” although the “implications for the US economy are highly uncertain.”
Pointing to “elevated” inflation due to “supply and demand imbalances related to the pandemic, higher energy prices and broader price pressures,” the statement said that “ongoing increases” in the policy rate will be “appropriate.”
The Fed slashed the rate to zero in March 2020 to support the economy as COVID-19 caused massive disruptions to businesses, but in the past year, the economy has been hit by a wave of price increases and inflation has reached a 40-year high.
Federal Reserve Chair Jerome Powell has said policymakers will do whatever it takes to keep inflation from becoming entrenched, but are trying not to hinder economic growth.
Markets are expecting as many as seven rate hikes this year, which would take the policy rate to 1.75 percent, assuming the central bank increases by a quarter-point each meeting.