The Federal Reserve stepped up its fight against inflation on Wednesday, unveiling the largest interest rate boost in 28 years as it tries to rein in skyrocketing consumer costs.
The Federal Reserve hiked its key interest rate by three-quarters of a percentage point, the largest increase since 1994. Following a quarter-point gain in March and a half-point increase in May, the number has now risen by a full point.
Most forecasts were expecting another half-point rate hike this week, in keeping with the Fed’s previous guidance, until a few days ago. However, after a report last Friday revealed that May inflation was higher than predicted, authorities decided to take a more aggressive approach.
In comparison to a year ago, consumer prices were up 8.6%. The hike reflects increased costs for not only gasoline and groceries, but also rent, airlines, and a variety of other services.
Carrying a credit card balance, getting a vehicle loan, or buying a house will all be more expensive with higher rates.
Economic growth is also hampered by higher borrowing costs. Fears that the Fed’s rate hikes will send the economy into a recession have caused stock prices to plummet in recent weeks.
Officials from the Federal Reserve said on Wednesday that the economy will grow by only 1.7 percent this year, down from the 2.8 percent growth rate they predicted three months ago.
In 2023, growth is expected to decrease even more, reducing the chances of a “soft landing,” in which inflation falls without a recession.
The Federal Reserve upped its unemployment prediction for next year from 3.5 percent to 3.9 percent.
