The US central bank has shown its determination to bring down the highest inflation rate in 40 years by raising its own benchmark lending rate by the highest amount in 22 years.
The Federal Reserve on Wednesday raised its benchmark lending rate to a range between 0.75 and 1%. That’s an increase of half a percentage point from what it was before, and the biggest increase in the rate since the year 2000.
Central banks cut lending rates at the start of the pandemic to stimulate the economy, but those low rates have contributed to rising inflation in recent months.
The inflation rate in the United States is currently 8.5%, its highest level since 1981. The inflation rate in Canada is currently 6.7%, its highest level in 31 years.
The Fed’s move takes its rate to its highest level since the start of the pandemic, and while the move was widely expected, some thought the central bank might act even more aggressively.
In addition to the rate hike, the Fed also said it would sell the trillions of dollars worth of bonds on its books, a move that will also make loans more expensive.
Several more rate hikes for the rest of the year are still expected, until the inflation rate returns to a comfortable range for central bankers, below 3%.