In a widely expected move, the Federal Reserve has raised its key interest rate by a half-percentage point, the first time it has done so since 2000. The Fed, which is fighting to tame inflation, signaled that there will be more large rises in its benchmark short-term interest rate to come, the AP reports. In March, the Fed raised rates by a quarter-point for the first time since 2018 but inflation continued to surge to a new 40-year-high, reports CNN. The Fed also said Wednesday that it is going to start reducing its $9 trillion balance sheet, which swelled during the pandemic as it sought to hold long-term borrowing rates down.
The move will cool the economy by increasing borrowing costs for businesses and consumers. The Fed seeks to achieve "maximum employment and inflation at the rate of 2% over the longer run," the central bank said in a statement Wednesday. "In support of these goals, the Committee decided to raise the target range for the federal funds rate to 3/4 to 1% and anticipates that ongoing increases in the target range will be appropriate." The Fed warned that Russia's invasion of Ukraine and COVID lockdowns in China could worsen inflation.
The Fed initially described rising prices as "transitory" and resisted raising the interest rate until it was clear that the job market was in robust shape, the Washington Post. The unemployment rate is now 3.7% and jobless claims have fallen to their lowest level since 1969. "It’s too hot. It’s unsustainably hot,” Fed chairman Jerome Powell said of the job market last month. "It’s our job to get it to a better place where supply and demand are closer together.” (Read more Federal Reserve stories.)