Fed: first rate increase since 2018

17th March, 2022

The US Federal Reserve (Fed) raised the key federal funds rate for the first time since March 2018 in a move designed to curb inflationary pressures. The members of Federal Open Market Committee (FOMC) implemented an increase of 0.25 percentage points at their March meeting, taking its key rate to a target range of 0.25% to 0.50%.

Although eight members of the FOMC voted for the 25-basis-point increase, one member called for a steeper rise of 50 basis points. The FOMC also flagged the strong likelihood of further increases in interest rates at future meetings this year; Fed officials expect the federal funds rate to reach almost 2% by the end of 2022.

The rate of consumer price inflation in the US rose to 7.9% in February, reaching its highest level since July 1981, and existing inflationary pressures are likely to be exacerbated by the war in Ukraine, which is causing “additional upward pressure on inflation”, and ongoing supply chain disruptions caused by Covid-19.

Looking ahead, the Fed predicts that the rate of inflation will remain high this year, although current levels are expected to moderate to 4.3% by the end of the year. The Fed has a target level for inflation of 2%. Fed Chair Jerome Powell remained optimistic about economic prospects for the US, saying: “The American economy is very strong and well positioned to handle tighter monetary policy”.

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This article was sourced from Adviser-Hub.co.uk.

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