The Fed is raising rates again to curb inflation and avoid a recession

As expected, the US Federal Reserve (Fed) increased interest rates by 75 basis points. An ‘unusually large’ rate hike may be required at the next Fed meeting, Jerome Powell warns.

The US Federal Reserve (Fed) on Wednesday announced a fourth straight hike in its key interest rate by three-quarters of a percentage point to 2.25% to 2.50% and plans to continue the move as inflation remains very high.

“Recent spending and output indicators have slowed. However, job creation has remained resilient in recent months and the unemployment rate is still low,” the Fed said in a statement released after its Monetary Affairs Committee (FOMC) conference meeting became.

This is the fourth straight rate hike: a quarter point in March, half a point in May and three quarters of a point in June – the biggest rise since 1994.

“We can avoid the recession”

“The Monetary Committee assumes that further rate hikes will be appropriate,” it said.

An “unusually large” rate hike may be required at the next Fed meeting, Jerome Powell later said.

Inflation is “much too high” and the labor market is “extremely tight,” he stressed. However, he said the decision in September “will depend on the data released by then”.

“We can avoid the recession,” assured the Fed chairman.

The central bank, which normally proceeds with quarter-point hikes, hit hard to stem inflation, which hit 9.1% over a year in June, a new high in more than 40 years.

A unanimous decision

And the Monetary Committee again makes sure to be “very vigilant about the risks of inflation”.

The aim of these interest rate increases is to make credit more expensive in order to curb consumption and investment and ultimately reduce price pressure.

The decision was taken unanimously by the 12 voting members. The Monetary Committee was full for the first time since 2013, with no vacant seats.

The Fed is hoping for a “soft landing” but the long-awaited economic slowdown could prove too severe to drive prices lower, weighing on jobs and even pushing the world’s largest economy into recession.

Key interest rates were urgently cut between 0% and 0.25% in March 2020 to support the economy in the face of the Covid-19 crisis and remained in that range until last March.