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- The United States Federal Reserve raises interest rates for the first time since 2018 as it lays out an aggressive plan to curb surging inflation
- It’s the first of many planned hikes for 2022, with the Fed increasing the policy rate by a quarter of a percentage point as inflation continues to put pressure on American consumers
- Policymakers largely expect interest rates of between 1.75 per cent and 2 per cent by the end of the year, meaning it’s likely the Fed will increase rates at each of its six remaining policy meetings
- Fed Chair Jerome Powell says the US economy is strong enough to weather the rates hikes, so the core focus for the bank is now on limiting the impact of rising prices on families
- US markets rose sharply following the Federal Reserve’s policy meeting, and the Australian share market has followed suit on Thursday
The United States Federal Reserve on Wednesday officially raised interest rates for the first time since 2018 as it laid out an aggressive plan to curb surging inflation.
The bank initiated the first of many planned rates hikes for 2022, increasing the policy rate by a quarter of a percentage point.
It’s a massive monetary policy swing as the Fed flips from trying to keep the economy afloat during the COVID-19 pandemic to countering the risks associated with ongoing supply chain woes and the war in Eastern Europe.
Most Fed policymakers project interest rates will rise from near-zero to between 1.75 per cent and 2 per cent by the end of the year — meaning it’s likely the central bank will raise interest rates at each of its six remaining policy meetings this year.
The bank also laid out a plan to push borrowing costs to restrictive levels next year as it ramps up its fight against inflation.
Fed Chair Jerome Powel said the US economy was strong enough to weather consistent rates hikes, so the core focus for the bank was now on limiting the impact of rising prices on American consumers.
Even so, inflation is still largely expected to remain above the Fed’s target rate of 2 per cent through to 2024. Mr Powell said
“The way we’re thinking about this is that every meeting is a live meeting,” Mr Powell said.
“We’re going to be looking at evolving conditions, and if we do conclude that it would be appropriate to move more quickly to remove accommodation, then we’ll do so.”
Seema Shah, a chief strategist with Principle Global Investors, told Reuters the Fed was still playing catch-up as it fought to get ahead of the inflation situation.
“It won’t be easy — rarely has the Fed safely landed the US economy from such inflation heights without triggering an economic crash,” Ms Shah said,
She said the conflict between Russia and Ukraine had the potential to disrupt the central bank’s plans even further, but price stability still had to be the Fed’s top priority.
The Fed’s comments on Wednesday saw the US share market spike, with the S&P 500 index closing 2.24 per cent higher, the Dow Jones 1.55 per cent higher, and the tech-heavy Nasdaq 3.7 per cent higher.
In Australia, the ASX 200 has followed suit, rising sharply in early action and maintaining gains of around 1.1 per cent throughout the day. Just before market close on Thursday afternoon, the ASX 200 was 1.11 per cent higher at 7254 points.
