US central bank rolled out a 75 basis point hike in the interest rates on Wednesday as inflation remained critically above target rates. The rate hike announced by the Federal Reserve is the largest increase in more than a quarter of a century.
The rate hike was widely expected but the hawkish language of the central bank has stymied hopes of an economic turnaround and is expected to slow demand. The new rate for the target federal funds is in the range of between 1.5% and 1.75%.
'Not Inducing a Recession'
At the end of a two-day policy meeting, Fed Chair Jerome Powell said the central bank was not trying to induce a recession.
"We don't seek to put people out of work ... Our objective really is to bring inflation down to 2% while the labor market remains strong ... What's becoming more clear is that many factors that we don't control are going to play a very significant role in deciding whether that's possible or not"he said at a news conference.
Analysts expect that there will be more rate hikes this year, including an additional 75-basis-point hikes in the near future. The wider expectation is that the rates will hover around 3.4% at the end of the year, which would be the highest level since January 2008.
Not Getting Easier
"There is a path for us to get there ... It is not getting easier. It is getting more challenging," the Fed chief said. "This is something we need to take seriously ... We're absolutely determined to keep them anchored," Powell said, referring to the inflation threat.
Along with the monetary tightening, the Fed also lowered economic outlook. As per new projections the US economy will slow to 1.7% rate of growth this year, with unemployment projected to rise to 3.7%.
"The Fed is willing to let the unemployment rate rise and risk a recession as collateral damage to get inflation back down. This isn't a Volcker moment for Powell given the magnitude of the hike, but he is like a Mini-Me version of Volcker with this move," Brian Jacobsen, senior investment strategist at Allspring Global Investments, told Reuters.
