Posted by on May 4, 2022 2:49 pm
Categories: Breaking Breaking News News

Fed hikes interest rates by half-percentage point

Originally appeared on The Hill

The Federal Reserve raised its baseline interest rate range Wednesday by two times the size of a usual rate hike as the central bank sprints to get ahead of rising inflation.

The Federal Open Market Committee (FOMC), the panel of Fed officials in charge of monetary policy, boosted interest rates by 0.5 percentage points to a target range of 0.75 to 1 percent. The bank has not raised interest rates by more than 0.25 percentage points at a single FOMC meeting since May 2000.

After leaving rates near zero for all of 2021, Fed Chair Jerome Powell and other bank leaders have pledged to quickly bring borrowing costs back toward levels that won’t stimulate the economy. 

Top Fed officials all but confirmed they would hike rates by 0.5 percentage points in the weeks leading up to the May FOMC meeting after approving a 0.25 percentage point hike in March. All ten voting member of the FOMC supported the decision.

Consumer prices rose 6.6 percent over the 12 months ending in March, according to personal consumption expenditures (PCE) price index, the Fed’s preferred gauge of inflation. The Fed aims for annual inflation of 2 percent each year.

“It may be that the actual peak was in March, but we don’t know that and so we’re not going to count on it,” Powell said during a panel discussion with top economic officials last month.

“We’re really going to be raising rates and getting expeditiously to levels that are more neutral.”

Interest rates for mortgages, automobile loans and other longer-terms loans were already rising in anticipation of the Fed’s decision. Rates on credit cards, short-term credit products and loans with adjustable interest rates — which lenders often tie to the Fed’s baseline interest rate range — are set to rise immediately.

Fed officials are hoping to bring inflation down by reducing consumer and business spending through higher interest rates. As households and businesses face higher borrowing costs, they could be less willing to spend money on goods and services. Lower demand for goods and services could prompt suppliers to reduce prices and curb plans to spend money on expanding their operations.

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