The US Federal Reserve has raised interest rates for the first time in more than three years and signalled more aggressive hikes through the year to tackle inflation.
US Federal Reserve Chair Jerome Powell (file photo). Photo: AFP / Getty Images
The central bank raised its benchmark rate by 25 basis points (a quarter of a percentage point) to a range of 0.25 percent to 0.5 percent.
It said inflation, which sits at a 40 year high of 7.9 percent, was being driven by supply chain disruptions, softer consumer demand caused by the pandemic, and higher energy prices.
The US central bank flagged the massive uncertainty the economy faces from the war in Ukraine and the ongoing health crisis, but still said "ongoing increases" in the target federal funds rate "will be appropriate".
It said the war in Ukraine was creating "additional upward pressure on inflation" and weighing on economic activity.
The interest rate path shown in new projections indicated the Fed Funds rate could rise to 2 percent this year, with further rises in 2023.
Even with the steep rises now projected, US inflation was expected to be 4.1 percent through this year and dropping to 2.3 percent in 2024.
"The invasion of Ukraine by Russia is causing tremendous human and economic hardship. The implications for the US economy are highly uncertain, but in the near term the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity," the Federal Reserve said in a statement that dropped its now longstanding direct reference to the coronavirus as the most direct economic risk facing the country.
The unemployment rate is seen dropping to 3.5 percent this year and remaining there next year, but is projected to rise slightly to 3.6 percent in 2024.
The new statement said the Fed expected to begin reducing its nearly US $9 trillion balance sheet "at a coming meeting".
- Reuters
