The U.S. Federal Reserve continued to reverse its easy-money policies by approving another unusually large interest rate increase and signaling that more rises were likely coming to combat inflation at a 40-year high. According to WSJ, FED officials decided to lift the benchmark federal-funds rate to a range between 2.25% and 2.5%. However, markets rallied after the meeting because Fed Chairman Jerome Powell offered fewer specifics about the magnitude of upcoming rate rises and hinted at an eventual slowdown.
U.S. inflation is estimated to have reached a new four-decade high in June, but there are signs of moderating price pressures. According to WSJ, the U.S. consumer-price index is expected to have increased 8.8% in June from the same month a year ago. That would be higher than May’s annual rate of 8.6%. However, fears of an economic slowdown have led to a decline in commodity prices in recent weeks, including oil, copper, wheat, and corn, after those prices rose sharply following the Russian invasion of Ukraine.
The U.S. Fed announced the largest interest-rate increase since 1994 and signaled it would continue lifting rates this year to fight inflation that is running at a 40-year high. Fed Chair Jerome Powell indicates that the economy may go into recession without a soft landing. Officials agreed to a 0.75-percentage-point rate rise, which will increase the Fed’s benchmark federal-funds rate to a range between 1.5% and 1.75%. It is expected that the Fed may raise rates to at least 3% this year.