On Wednesday, the US Federal Reserve raised interest rates by a quarter of a percentage point and expected them to reach a range between 1.75% and 2%, By the end of the year.
The Federal Open Market Committee, which sets monetary policy, said the repercussions of the war in Ukraine would “likely cause pressure to increase inflation and affect economic activity”, although “the implications for the US economy are highly uncertain”.
While she indicated “high” inflation given “the imbalance in supply and demand linked to the pandemic, high energy prices and broader price pressures”, “continued increases” in the rate would be “appropriate”.
But Federal Reserve Chairman Jerome Powell confirmed Wednesday that although the return of inflation to the bank’s target of 2% will take longer than expected, the US economy is in a good position and able to withstand the interest rate hike, indicating that it is expected to achieve growth. The rate is 2.8% this year, lower than previous forecasts.
And the Federal Reserve cut the interest rate to zero in March 2020 to support the economy, while Covid caused widespread disruptions in business, but the economy was exposed during the past year to a wave of price increases and inflation reached its highest level in 40 years.
Markets expect to raise interest rates seven times this year, to reach the rate of 1.73%, assuming that the US Central Bank raises the rate by a quarter point at each meeting.
A member of the committee, James Pollard, voted against the measure, calling for a half-point rate hike, as a first step in tightening monetary policy.
Committee members raised their forecast for US inflation for the year to 4.2%, compared to a previous rate of 2.6.
The last time the Federal Reserve raised interest rates was in December 2018.