Federal Reserve unveils biggest rate hike in 22 years

JRome Powell announced the biggest interest rate hike in 22 years and warned of more punitive hikes to come as the US Federal Reserve struggles to control runaway inflation in the world’s largest economy.

The central bank raised U.S. rates from 0.5% to 1% in its first increase of more than 0.25 points since 2000.

Fed Chairman Powell admitted inflation was “far too high” and said further increases of 0.5 points would likely be needed within weeks.

Wall Street surged as markets cheered Mr Powell’s nerves on a possible 0.75 point rise, with the S&P 500 closing 3% higher in the biggest one-day jump since May 2020.

It comes as the Bank of England is set to raise its own interest rate from 0.75% to 1% on Thursday as voters head to the polls in local elections.

The increase will put additional pressure on households already struggling with the highest price increases in 30 years and a series of tax increases.

Mr Powell said he hoped to avoid triggering a recession, saying ‘the underlying momentum in the economy remains strong’ despite GDP contracting in the first three months of the year amid fears increasing stagflation.

“The current situation is obvious: the labor market is extremely tight and inflation is far too high,” he said.

Very low unemployment, rising wages and strong finances for households and businesses mean the economy should be able to handle higher borrowing costs without a downturn, Powell added.

There is “a chance to bring down wages and inflation without having to slow the economy and experience a recession and see unemployment rise significantly. There is a way to that,” the Fed Chairman said. “We have a good chance of having a soft landing, or a smooth one.”

This decision follows the March rise of 0.25 pc. These are the first rate hikes in back-to-back policy meetings since 2004, underscoring a new urgency in efforts to tackle rising prices.

Mr Powell said: ‘My colleagues and I are acutely aware that high inflation imposes significant hardship, particularly on those least able to afford the higher cost of basic necessities.

To deal with this, he said policymakers are “on track to quickly bring the policy rate back to more normal levels.”

This means that “additional increases of 50 basis points should be on the table at future meetings”.

Inflation in the United States stands at 8.5%, a 40-year high fueled by heavy government spending, a strong job market and chaos in global supply chains.

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