US Federal Reserve Chair Jerome Powell. Photo: AFP / Getty Images
US Federal Reserve Chair Jerome Powell. Photo: AFP / Getty Images

US Federal Reserve hikes interest rates by 75 bp; Signals slower hikes in future

The Federal Reserve of the United States of America on Wednesday hiked key interest rates by 75 basis points.  Borrowing cost in the North American country is currently standing at 3.75-4.0 percent which is the highest level in the past 10 years.

The latest interest rate hike is part of the central bank’s plans to bring down high inflation in the country which has been severely impacting industry and day to day life of ordinary citizens. It is the fourth consecutive time, the Federal Reserve is increasing the benchmark borrowing rate by 75 basis points.

Interest rate hikes are used as a monetary policy tool to bring down cash flow in the economy which will in turn bring down demand.  Reduction in demand for goods and services will push down high inflation rates in the economy.

The energy crisis in the international market triggered by the Russian special military operation in Ukraine and the crisis in the global supply chain pushed prices of essential commodities up in major economies, causing high inflation rates. Inflation in the US remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.

US Federal Reserve in a statement released on Wednesday blamed the Russian military operation in Ukraine for the recent economic condition across the globe. According to Feds, war is putting additional upward pressure on inflation which is disrupting economic activity on an international scale.

The US monetary policy committee anticipates that ongoing increases in the rates will be appropriate in order to attain a policy stance that is “sufficiently restrictive” to return inflation to the 2 percent target over time.

With timely intervention using monetary policy tools, US Federal Reserve plans to bring down inflation to the 2 percent target without triggering an economic recession. The monetary policy committee is also keeping note of the ongoing crisis in the labor markets in the USA where employers are not able to find enough employees to work.

In the statement, the monetary policy committee stated that it will look into the matter of future interest rate hikes after looking into the impacts of recent rate hikes on the economy. It also said that the committee is prepared with all monetary policy tools to take any corrective measures in case the target of the monetary policy committee might trigger an economic situation that is highly risky in nature.

The Gross Domestic Product of the US economy returned to a path of growth after two-quarters of regrowth, thus taking the country out of a recession technically. During the third quarter, the GDP of the United States grew at an annual rate of 2.6 percent.