US Fed raises interest rate by half point to contain inflation

Federal Open Market Committee pushes rate above 0.75 per cent

Federal Reserve Chairman Jay Powell. – File photo
Federal Reserve Chairman Jay Powell. – File photo


Published: Wed 4 May 2022, 10:08 PM

Last updated: Wed 4 May 2022, 10:37 PM

The Federal Reserve on Wednesday raised the benchmark lending rate by a half percentage point in its ongoing effort to contain the highest inflation in four decades.

After a quarter-point increase in March, the US central bank's policy-setting Federal Open Market Committee (FOMC) pushed the rate above 0.75 per cent as it continues tightening policy to cool the economy, and said more increases "will be appropriate."

Policymakers continue to believe inflation will gradually return to the Fed's two-percent target as it raises borrowing costs, but will be "highly attentive to inflation risks," the FOMC said in a statement following the conclusion of its two-day meeting.

The committee also noted the "highly uncertain" impact of external factors including Russia's attack on Ukraine, which are "creating additional upward pressure on inflation and are likely to weigh on economic activity."

In addition, Covid lockdowns in China "are likely to exacerbate supply chain disruptions," the statement said.

The FOMC also said it would begin reducing its massive bond holdings starting June 1, beginning at the pace of $47.5 billion a month, and then doubling after three months.

Meanwhile, India’s central bank also announced a surprise interest rate hike of 0.4 percentage points on Wednesday, as Asia’s third-biggest economy reels from galloping inflation in the wake of the Ukraine war.

In its first increase in borrowing rates since August 2018, Reserve Bank of India governor Shaktikanta Das said it would “increase the policy repo rate by 40 basis points to 4.40 percent with immediate effect.”

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