Fed Approves First Interest Rate Hike Since 2018. And There's More to Come.
The increase of 0.25 percentage points is planned to be one of several.
On Wednesday, the Federal Reserve approved an interest rate hike for the first time since December 2018. The increase of 0.25 percentage points is planned to be one of several, as the Fed plans to raise rates at each of its six remaining meetings scheduled for the year.
"The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With appropriate firming in the stance of monetary policy, the Committee expects inflation to return to its 2 percent objective and the labor market to remain strong," the Fed wrote in a Wednesday statement. "In support of these goals, the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent and anticipates that ongoing increases in the target range will be appropriate."
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The Fed cited pandemic-related supply and demand imbalances and higher energy prices as some of the factors driving the rate hike. It also emphasized Russia's invasion of Ukraine as a factor in that the conflict has been "causing tremendous human and economic hardship" and creating "additional upward pressure on inflation and weigh on economic activity."
Since March 2020, the Fed has kept interest rates near zero as the US economy was affected by Covid. But now that the economy is recovering its job losses and showing more signs of activity, the Fed is more focused on addressing inflation — which is the highest the country has seen in 40 years.
"The Committee is determined to take the measures necessary to restore price stability," Federal Reserve chair
Jerome Powell said at a press conference on Wednesday. "The American economy is very strong and well positioned to handle tighter monetary policy."