The US Federal Reserve has increased interest rates by 0.75 percentage points as part of a battle to tackle inflation.
The move announced on Wednesday represented the largest interest rate rise by the Fed since 1994.
The US central bank said it would raise its benchmark rate by three quarters of a percentage point, which would increase its target range to between 1.5 per cent and 1.75 per cent — the highest level since 2019.
Further increases in US interest rates are likely in the months ahead, the Fed suggested.
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Its chairman Jerome Powell said on Wednesday that it had both the tools and the resolve to bring inflation down. He said that was “essential”, adding that “strong action was warranted”. However, he suggested that it could take some time to get inflation back down.
“It is essential that we bring inflation down if we are to have a sustained period of strong labour market conditions that benefit all ... The current picture is plain to see. The labour market is extremely tight and inflation is much too high.”
Mr Powell said: ”Clearly today’s 75 basis point increase is an unusually large one and I do not expect moves of this size to be common.”
However, he forecast that the Fed’s July meeting could see rates increase further by either a half point or three-quarter point. The European Central Bank is also expected to increase rates in July, with a further hike pencilled in for September.
The increase in US interest rates announced on Wednesday was the third since March. It came after the main US inflation rate hit 8.6 per cent last week — a higher level that had been anticipated.
Officials now expect that their preferred measure of inflation will be 5.2 per cent at the end of the year.
That would represent a slowdown from the current rate of inflation but it’s significantly faster than policymakers expected in March, when their projections showed prices ending the year up 4.3 per cent.
The Fed also sharply downgraded its projections for inflation-adjusted GDP growth. In March, it expected the US economy to grow 2.8 per cent this year and 2.2 per cent next year. It now expects just 1.7 per cent growth each year.
Mr Powell said he saw a US economy that was strong and able to weather higher interest rates.
He said overall, spending was very strong.
“There’s no sign of a broader slowdown, that I can see, in the economy.”
“We see job growth slowing, but it’s still at quite robust levels.”
Separately on Wednesday, US president Joe Biden criticised some of the largest oil companies for profiteering at a time of surging fuel and energy prices.
Fuel prices have exceeded $5 (€4.79) per gallon on average for the first time this week
Mr. Biden pointed the finger at energy firms in a letter to seven top executives sent on Tuesday. He demanded they explain their decision to limit refining capacity and announced that his administration would hold an “emergency meeting” to discuss ways of stemming the crisis.
“At a time of war, refinery profit margins well above normal being passed directly onto American families are not acceptable,” Mr. Biden said in the letter. “There is no question that Vladimir Putin is principally responsible for the intense financial pain the American people and their families are bearing. But amid a war that has raised gasoline prices more than $1.70 per gallon, historically high refinery profit margins are worsening that pain.”
