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United States’ Federal Reserve raises interest rate by 0.75%

The Federal Reserve has raised its benchmark interest rates by 75 basis points for the second consecutive month in a row in a bid to tame the increasing rate of inflation.

This follows a half-point rise in May, and a 0.75 percentage-point rise in June, depicting the first of that magnitude since 1994.

At the end of the two-day policy meeting, the Federal Open Market Committee lifted the target range of the federal funds rate to 2.25 per cent to 2.50 per cent.

What they are saying

Speaking to the recent move by Fed, Jay Powell, Fed chair pointed out that the continuous tightening of the policy will likely become appropriate to slow the pace of increases as policymakers assess how rate rises are affecting the economy and inflation.

However, Powell said he does not think the economy is in recession, even though growth was negative in the first quarter and was expected to be barely positive in the second quarter.

Think about what a recession is; It’s a broad-based decline across many industries that’s sustained more than a couple of months. This doesn’t seem like that now. The real reason is the labor market has been such a strong signal of economic strength that it makes you question the GDP data,” Powell said.

Powell also said the Fed is strongly committed to reducing inflation, adding that that could come with a cost to general economic growth and the labour market in particular.

We think it is necessary to have growth slow down. Growth is going to be slowing down this year for a couple of reasons. The economy will probably grow below its long-run trend for a period of time. We actually think we need a period of growth below potential in order to create some slack.

Notably, the rate-setting Federal Open Market Committee cautioned that recent indicators of spending and production have softened. In a post meeting statement said, “Nonetheless, job gains have been robust in recent months, and the unemployment rate has remained low.

What you should know

  • This online medium reported last month that the United States Federal Reserve raised its target interest rate by three-quarters of a percentage point to combat a disruptive rise in inflation, while also forecasting a weakening economy and growing unemployment in the months ahead.
  • The rate hike was the biggest by the Federal Reserve since 1994, and it came after recent data indicated little headway in the country’s inflation fight.