US Central Bank makes the biggest interest rate hike in 30 years

Central Bank of United States announced biggest interest rate increase in 30 years to fight the soaring consumer prices.

Key Facts

  • Central bank decided to increase its key interest rate by three quarters of the percentage point, in the range of 1.5% to 1.75%.
  • Interest rate was increased for third consecutive time, in the aftermath of inflation in US.
  • Officials expect rates charged by Federal Banks for borrowing could reach 3.4% by the end of 2022.

Inflation in other countries

Consumer prices jumped by 9% in UK, in April 2022. Bank of England is also likely to announce its fifth-rate increase ever since December 2021. Canada, Brazil and Australia have further increased rates. European Central Bank also is making  planning to take such measures.

Situation in US

To support the economy in the aftermath of covid-19 pandemic in 2020, United States has cut rates. Fed has also increased the rates two times in 2022. It increased the rate by 0.25 percentage points in March and by 0.25 percentage point in May. Last time, the Fed announced a rate hike of similar size in 1994. This move made borrowing more expensive. It is likely to cool demand and slow down the economic activity.

Federal Reserve System

The Federal Reserve System or Fed, is the central banking system of United States which was established on December 23, 1913 in accordance with the Federal Reserve Act.  Roles and responsibilities of the Fed expanded over the years in the aftermath of Great Depression in 1930s and Great Recession during 2000s.

Three objectives under Federal Reserve Act

United States works with three key objectives for monetary policy in Federal Reserve Act:

  1. Maximizing employment
  2. Stabilizing prices, and
  3. Moderating long-term interest rates.
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