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US Fed raises interest rates by 75 basis points, kicking off 4th hike

  • By Al Mayadeen English
  • Source: Agencies
  • 27 Jul 2022 22:16
3 Min Read

The US Federal Reserve is once again raising interest rates as citizens grapple with even higher prices.

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  • A man walks past the Federal Reserve Bank in Washington, DC, US December 16, 2015 (Reuters)
    A man walks past the Federal Reserve Bank in Washington, DC, US December 16, 2015 (Reuters)

The United States Federal Reserve on Wednesday hiked interest rates in the country by 75 basis points, or 0.75%, in the fourth increase this year aimed at tackling surging inflation that impacted every sector in the US economy.

"The Committee decided to raise the target range for the federal funds rate to 2-1/4 to 2-1/2 percent and anticipates that ongoing increases in the target range will be appropriate," the central bank's Federal Open Market Committee (FOMC) said in a statement on its monthly rate decision for June. 

After three increases of 75 basis points, 50 basis points, and 25 basis points, respectively, in June, May, and March, the Fed-determined benchmark US lending rate had previously been set at 1.5 to 1.75%.

The Federal Reserve also said it would move on with balance sheet reductions as scheduled starting September, reducing the tens of billions of dollars it now spends each month on bond purchases to stabilize the economy plagued by a pandemic.

Given the numerous risks the United States is facing, the country only has a meager chance of averting an economic slump, the IMF warned on Tuesday.

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"It's a very narrow path," IMF chief economist Pierre-Olivier Gourinchas said. "The current environment suggests that the likelihood that the US economy can avoid a recession is actually quite narrow." 

While the US labor market is now healthy, with an extremely low unemployment rate of 3.6%, Gourinchas said, he noted that the IMF anticipated that "as this monetary policy tightening continues, then it's going to progressively cool off also the labor market," leading unemployment to increase.

US government data released at the end of June showed that price increases that had held steady in the past 12 months ended in May, while the rise in consumer spending slowed sharply.

This, according to some, may give solace to consumers as a sign that the Federal Reserve's aggressive interest rate plans are beginning to have an effect in limiting the fastest uptick in inflation seen in more than four decades.

Meanwhile, the Fed has been for the past few months aggressively hiking interest rates to try and lower rising prices, but its efforts did not materialize in May, with consumer prices hitting four-decade highs. Consumer prices in May rose 8.6% and soared over what economists thought was the peak in March.

The Biden administration has tried to absolve itself from responsibility for the widespread inflation hitting the country, with Biden himself trying to cast the blame on Russia for the record food and gas prices affecting US citizens.

  • United States
  • Federal reserve
  • US inflation
  • Joe Biden

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