The Federal Reserve approved another steep hike to its benchmark interest rate on Wednesday, pushing forward with a plan to tackle decades-high inflation despite fears it could trigger a recession.
The rate-making Federal Open Market Committee announced the hike of 0.75%, or 75 basis points, after a two-day meeting.
The Fed has now hiked rates by three-quarters of a percentage point for the second straight month – with the previous 0.75% increase marking the first of its kind since 1994.
The Fed’s latest rate hike came two weeks after dismal June inflation data revealed prices surged 9.1% in June – the highest since November 1981. The fresh high for inflation renewed pressure on Fed Chair Jerome Powell and top policymakers to bring down prices that are slamming household budgets.
The June inflation reading initially led investors to bet that the Fed would implement a full percentage point interest rate hike for the first time in its modern era. But the markets backed off that projection after Federal Reserve Governor Christopher Waller and others downplayed its likelihood.
A day after the June Consumer Price Index was released, Waller said he would “fully support” a three-quarter percentage point hike due to the elevated inflation reading – which he described as a “major league disappointment.”
By hiking interest rates, the Fed is aiming to cool demand within the economy and thereby lower prices for consumers. Higher interest rates make it more expensive to borrow money.