U.S. Federal Reserve Again Raises Interest Rates By 0.75 Percentage Point


For the second consecutive time, the U.S. Federal Reserve has raised its trendsetting interest

rate by 0.75 percentage point to cool down overheated inflation.

America’s central bank lifted its borrowing rate to a range of 2.25% to 2.50%, its highest level

since December 2018. The rate hike was approved unanimously.

The back-to-back increases in June and July represent the most aggressive action by the

Federal Reserve since it began using the overnight federal funds rate as its main tool for

monetary policy in the 1990s.

Stock markets largely expected the move after Federal Reserve officials telegraphed the

increase in a series of statements in recent weeks. Stocks rallied after Federal Reserve

Chairman Jerome Powell left the door open about the central bank’s next move in September,

saying it would depend on the data.

“As the stance of monetary policy tightens further, it likely will become appropriate to slow the

pace of increases while we assess how our cumulative policy adjustments are affecting the

economy and inflation,” Powell said.

The Fed Chair added that he does not think the U.S. economy is in a recession, though growth

was negative in the first quarter and was expected to be barely positive in the second quarter.

The latest interest rate increase comes as inflation in America sits at 9.1%, its highest level

since 1981. Like most central banks, the Federal Reserve targets inflation at 2%.

Powell said the Fed is “strongly committed” to reducing inflation and said that could come with a

cost to economic growth and the labour market.

“We think it is necessary to have growth slow down. Growth is going to be slowing down this

year for a couple of reasons,” he said. “We actually think we need a period of growth below

potential in order to create some slack.”

First-quarter gross domestic product (GDP) in the U.S. declined by 1.6%, and markets are

bracing for a reading on second quarter GDP to be released later today (July 28) that could

show consecutive quarterly declines, which would put the American economy into a technical

recession.

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