US central bank raises interest rate by 0.75 percentage point: largest interest rate step since 1994 | Economy

An interest rate step of three quarters of a percentage point has not occurred since 1994. The rate hike is also slightly larger than the Fed initially announced. The markets were widely expected to take a firmer intervention, especially after it emerged last week that inflation is also rising faster than expected in the world’s largest economy. After the announcement, yields on two-year government bonds rose. US equities also fell. The dollar made up for an earlier loss.

Last week it was announced that inflation in the US had risen to 8.6 percent in May. That was the highest level in more than 40 years. The high inflation is partly due to the increased fuel prices due to the war in Ukraine. Foods have also become more expensive, causing many American households to see their purchasing power decline. Consumer economic confidence in the US, meanwhile, has fallen to an all-time low. Fighting inflation is his administration’s top domestic priority, according to President Joe Biden.

The inflation forecast, measured by consumer spending, has risen from 4.3 percent to 5.2 percent this year. But core inflation, excluding rapidly rising food and energy costs, is projected at 4.3 percent, just 0.2 percentage points higher than the previous forecast.

Central bankers have also revised their economic outlook downwards. That also underscores the arduous task facing Fed President Jerome Powell as he tries to curb inflation without triggering a recession. Experts now assume a growth of 1.7 percent this year. That was 2.8 percent in the estimate in March. Powell said in a statement that the Fed is determined to reduce inflation.