WASHINGTON: The Federal Reserve on Wednesday (May 4) announced its biggest rate hike since 2000, with a half percentage point increase as it works to crush soaring US inflation.
With inflation at the highest rate in four decades, Federal Reserve Chair Jerome Powell sent a message directly to the American people, expressing concern for the pain caused by rising prices, and pledging to use all available tools to bring them down.
But he told reporters he remains confident the economy is strong enough to withstand rate increases without tipping into a recession.
After a quarter-point hike in March, the US central bank's policy-setting Federal Open Market Committee (FOMC) pushed the benchmark interest rate above 0.75 per cent as it works to cool the economy, and confirmed more increases "will be appropriate".
The hike will raise the costs of all types of borrowing, from mortgages to credit cards to car loans, cooling demand and business activity.
Inflation has become an overriding concern after the world's largest economy saw annual consumer prices surge 8.5 per cent over the 12 months to March - the biggest jump since December 1981.
Policymakers continue to believe inflation will gradually return to the Fed's two-per cent target as it raises borrowing costs, but in a statement following the conclusion of its two-day meeting, the FOMC said it will be "highly attentive to inflation risks".
In an unusual move, Powell opened his news conference speaking to the American people.
"Inflation is much too high. And we understand the hardship that is causing," he said, promising to use all tools available to bring it down "expeditiously".
He acknowledged that higher interest rates also bring their share of pain, but "everyone would be better off if we can get this job done. The sooner, the better".
To achieve that aim, he said "additional 50-basis point increases should be on the table at the next couple of meetings", however, a more aggressive three-quarter point hike is not under consideration.
The Fed's goal is to engineer a "soft landing", reining in inflation while avoiding a contraction in economic activity, and Powell said that outcome is likely.
"It's a strong economy, and nothing about it suggested ... that it's close to or vulnerable to a recession," he said.
Source: CNA
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