The Federal Reserve, in the first of what is expected to be a series of hikes, is raising its key short-term interest rate by a quarter-point from near zero. The central bank, which is fighting to tame the worst inflation in 40 years, signaled Wednesday that there could be up to seven rate hikes this year, the AP reports. The decision to raise rates for the first time since 2018 wasn't exactly unexpected, the Wall Street Journal reports. Fed chair Jerome Powell said earlier this month that because of market volatility caused by Russia's invasion of Ukraine, he would propose raising rates by a quarter-point instead of the half-point some of his colleagues had been calling for.
The projected hikes will bring the short-term rate to 1.875% by the end of this year. The move has been in the works for months and the cost of mortgages and other forms of credit has already risen in anticipation. Central banks in countries including Canada, South Korea, and Poland have also raised interest rates in recent months, but the uncertainty caused by the war is making their job a lot more difficult, the New York Times reports. While inflation is still a major worry, the outlook for the global economy is worsening and central banks are trying to avoid cooling national economies too much, which could potentially derail the recovery from the pandemic.
The Fed forecast another four rate hikes in 2023, bringing the benchmark rate to 2.8%, the highest in 14 years, per the AP. Powell told lawmakers earlier this month that the current conditions could be closer to the high inflation of the 1970s than the more moderate inflation that has driven central bank policy since the 1990s, reports Reuters. "We haven't faced this challenge in a long time," Powell told the House Financial Services Committee. "But we all know the history and we all know what we need to do." Fed officials said Wednesday that inflation is likely to be at 4.3% at the end of 2022, far above its 2% target. (Read more Federal Reserve stories.)