The United States Central Bank announced another unusually large hike in its interest rates. It comes as the Federal Reserve tries to rein in the soaring prices around the United States as inflation continues to skyrocket.
The Fed said it would raise the rate by 0.75 percent, targeting a range of 2.25 percent to 2.5 percent.
The Fed has been raising its cost of borrowing since March in order to try and cool the economy and ease down the price of inflation. However, there are fears that raising inflation will tip the country into a recession.
Reports recently show that there is a fall in consumer confidence, as well as a slowing of the housing market and claims of unemployment rates rise, and the first contraction in business activity since 2020.
Official figures are expected this week to show that the economy shrunk yet again for a second quarter in a row. In other countries in the world, the milestone would be considered a recession, it is however measured in a different way in the United States.
The federal reserve chairman, Jerome Powell, said that there were parts of the economy that were slowing but that the banks were going to keep the interest rates in the months ahead despite the risks. He pointed the inflation running right now at a four-decade high.
“Nothing works in the economy without price stability,” he said. “We need to see inflation coming down…That’s not something we can avoid doing,” Powell said.
Higher interest rates fight inflation because they raise the costs of bowling and encourage people and businesses to borrow less and spend less. In theory, this is meant to lead to lower demand and slow down the rise of prices.
Inflation means that central banks don’t have a choice but to raise the rates, economists say. It rose to 9.1 percent last month which was driven by higher prices for food gasoline and shelter. This was well above the target of 2 percent and reached well above the fastest rate since 1981.
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