The Fed raises rates again by three-quarters of a point

Fed Raises Rates Three-Quarter Points Again


Faced with inflation that is not slowing down in the United States, the American Central Bank (Fed) hit hard on Wednesday with a new sharp increase in its key rates in an attempt to curb inflation, on recession threat background. 

The Fed Monetary Committee (FOMC) met on Tuesday and Wednesday, and raised its key rates by three-quarters of a percentage point. These are now between 2.25% and 2.50%.

This is the fourth consecutive increase: a quarter point in March, a half point in May, and three quarter points in June — its largest increase since 1994.

And “the monetary committee anticipates that further increases in key rates will be appropriate,” the Fed commented in a press release.

< p>The decision was made unanimously by the 12 voting members. The Monetary Committee was full, with no vacant seats, for the first time since 2013.

The Fed, which usually operates in quarter-point hikes, made another sharp hike in an attempt to to curb inflation which in June reached a new high for more than 40 years, at 9.1% over one year.

The objective of these rate hikes is to make credit more expensive in order to slow down consumption and investment and, ultimately, to ease the pressure on prices.

Key rates had been lowered in between 0 and 0.25% in March 2020, to support the economy in the face of the Covid-19 crisis, and remained within this range until last March.

Employment still robust

“Recent spending and production indicators have slowed down,” says the Fed, referring in particular to consumption, the engine of the American economy. 

“However, job creations have remained robust in recent months, and the unemployment rate is still low”, also comments the FOMC, which again assures that it is “very attentive to the risks of inflation”.

< p>Fed Chairman Jerome Powell will hold a press conference at 6:30 p.m. GMT.

Fed Hikes Rates Three-Quarter Points Again

Fed Hikes Rates Three-Quarter Points Again

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The Fed hopes for a “soft landing,” but the long-awaited economic slowdown to drive down prices may prove too severe, which could weigh on the job market, or even precipitate the first economy in the world in a recession.

However, the good health of the American economy should allow it to escape this, according to Joe Biden's Minister of Economy and Finance, Janet Yellen.

The IMF is less optimistic, however. “The current environment suggests that the possibility of the United States escaping recession is slim,” its chief economist, Pierre-Olivier Gourinchas, warned on Tuesday.


The European Central Bank (ECB) has also started to tighten its monetary policy, following many financial authorities. The IMF said on Tuesday that it was essential that these institutions continue to fight against inflation.

This will certainly not be done without difficulty and “tighter monetary policy will inevitably have economic costs , but any delay will only exacerbate them”, according to the IMF.

The institution has sharply lowered its growth forecast for the United States in 2022 and now only expects 2.3% .

Gross Domestic Product (GDP) growth in the second quarter will be released on Thursday. It should be very slightly positive, after a negative first quarter (-1.6%).

But the risk of recession continues to weigh on the world's largest economy.

The definition even the recession is debated in the country.

Are these two consecutive quarters of contraction in Gross Domestic Product (GDP)? Or a broader deterioration in economic indicators? 

The controversy is likely to continue as the midterm elections approach in November.