The Federal Reserve (Fed) hiked interest rates by 0.75%, the highest the country has ever witnessed since 1994. The decision to hike the rates was followed by the steaming hot inflation to ease the pressure on the citizens’ economic growth and financial situation. The rates were the highest ever witnessed in three decades.
The decision highlights the Fed’s serious moves to tackle rising inflation. According to the expectations of several policymakers, the Fed is likely to end the year with a 3.4% interest rate. Estimates in March laid out that the rates would be somewhere around 2.5% by the end of the year.
“Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.”
Fed
Fed is trying its best to battle inflation
“Clearly, today’s 75 basis point increase is an unusually large one, and I do not expect moves of this size to be common.”
Jerome Powell
Powell said that in order to progress, inflation should flatten out. Projections of the dot plot show that policymakers signaled that rate hikes would be much more aggressive in the future in order to stop inflation from rising at its fastest rate.
Officials also slashed their growth forecast for 2022, now expecting only a 1.7 percent increase in GDP, down from 2.8 percent in March.
“Overall economic activity appears to have picked up after edging down in the first quarter. “Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.“
The economic projections portray that inflation is expected to drop sharply in 2023, down to 2.6%. The current decision of the Fed is to stabilize the economy without causing a downturn.