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28 Jul, 2022 12:27

US makes aggressive move to tackle inflation

The Federal Reserve delivered a second consecutive 75 basis-point rate increase
US makes aggressive move to tackle inflation

The US Federal Reserve delivered another large interest-rate hike on Wednesday in an attempt to tame surging consumer prices.

The 75 basis-point increase matched the move made at its previous meeting in June, and is the fourth time the Fed has raised its benchmark rate since March.

Inflation in the US rose to 9.1% last month, driven mainly by higher prices for fuel and food. That is the fastest rate since 1981 and is way above the official 2% target.

Raising the cost of borrowing is aimed at forcing people and businesses to borrow less and spend less, thus bringing down prices. However, higher rates can reduce economic activity and trigger a recession.

Federal Reserve Chairman Jerome Powell admitted that parts of the economy were slowing but said that more rate hikes may come in the coming months despite the risks.

“We're not trying to have a recession – and we don't think we have to,” he said.

The Fed had kept its benchmark interest rate near zero since the beginning of the Covid-19 pandemic, but in March it started what has been widely described as one of the most aggressive hiking cycles in recent decades. After Wednesday’s hike, the target for the federal funds rate – which establishes how much banks charge each other for short-term loans but is also a benchmark for other loan rates – is between 2.25% and 2.50%.

Warnings of an impending crisis in the US have begun to sound more frequently. Renowned economist Nouriel Roubini, dubbed ‘Doctor Doom’ by Wall Street for predicting the financial crisis of 2008-09, said earlier this week that the country was heading for a severe recession and a severe debt and financial crisis.

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