US Fed hikes policy interest rate by a further 75 basis points
29 Jul 2022
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US central bank, the Federal Reserve, on Thursday raised its policy interest rate by 75 basis points, for the second straight month, and signaled another similar hike soon to tame a runaway inflation that has far exceeded its target rate of 2 per cent.
The Federal Open Market Committee (FOMC) has decided to raise the target range for the federal funds rate to 2.26 to 2.50 per cent to support its goals.
In addition, the FOMC said it would continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, under a planned reduction of the size of the Federal Reserve's balance sheet.
Fed chairman Jerome Powell said a similar move was possible again, even as he rejected speculation that the US economy is in recession.
The committee is strongly committed to returning inflation to its 2 per cent objective, FOMC stated in a release.
The latest hike takes the cumulative June-July increase to 150 basis points - the steepest since the time of Paul Volcker in the early 1980s.
Fed said indicators of spending and production have now softened and that job gains have been robust in recent months, and the unemployment rate has remained low.
Inflation, however, remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures, resulting from Russia’s war against Ukraine.
The war in Ukraine, besides causing tremendous human and economic hardship, is creating additional upward pressure on inflation and are weighing on global economic activity, Fed noted.
Fed said the aim is to achieve maximum employment and inflation at the rate of 2 per cent over the longer run.
In support of these goals, the committee proposes to continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, so as that the economy returns to the 2 per cent inflation levels.
The committee will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments before deciding on any policy action it added.
