Fed’s biggest interest rate hike in 30 years
Central Bank of United States has announced the biggest interest rate increase in 30 years in a move to fight the soaring consumer prices.
- Central bank has 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 has been 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 had jumped by 9% in UK, in April 2022. Bank of England is also likely to announce its fifth-rate increase since December 2021. Canada, Brazil and Australia have also increased rates. European Central Bank is also planning to take such measures.
Situation in US
United States has cut rates to support the economy, in the aftermath of covid-19 pandemic in 2020. 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 had announced a rate hike of similar size in 1994. This move has 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. It was established on December 23, 1913 in accordance with the Federal Reserve Act. Roles and responsibilities of the Fed has 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 has set up three key objectives for monetary policy in Federal Reserve Act:
- Maximizing employment
- Stabilizing prices, and
- Moderating long-term interest rates.
Month: Current Affairs - June, 2022
Topics: Interest Rates
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