The US Federal Reserve has raised its base interest rate by 0.5% to fight inflation, the sharpest increase since 2000.

The US Federal Reserve raised the rate for the second time two months after that inflation has reached a 40-year high 8.5% in March.

The change, which contains the Fed’s target rate range of 0.75% to 1%, will make it more expensive to borrow on purchases such as cars, homes, credit card purchases and business deals.

Comments from Fed Chairman Jerome Powell and other Fed officials ahead of Wednesday’s announcement have already led to higher rates in day-to-day lending operations for products such as homes and cars, said Gus Focher, senior vice president and chief economist at PNC Financial Services Group . .

“Where we see them more often [higher rates] there are now short-term borrowing costs, ”he told NBC News, citing one-year adjustable-rate mortgages.

The Fed was under pressure to cool the recovery from the pandemic, which led to a sharp rise in jobs and wages, but led to higher prices for a range of services from petrol to real estate.

Fuel prices, which rose after Russia’s invasion of Ukraine and peaked in March, were a key factor in inflation.

Some have criticized the Fed, saying it was too slow to start tightening loans, and could end up raising rates so aggressively that it would cause a recession.

“One-third chance of recession”

On Wednesday, it signaled a further sharp rise, which is expected to take the form of a half-point increase at the next meeting in June and possibly another after that, in July.

Some economists believe that inflation probably peaked in March, which means that the Fed will be able to slow down interest rates.

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Among them were Ian Sheperdson of the Pantheon Macroeconomics, who told customers on Monday that “declining demand for housing, impending a sharp drop in inflation and a sharp tightening of financial conditions” were good reasons to prevent “endless” rate hikes.

He said it is unlikely to prevent an increase in June, but could affect what happens in July.

Mr Focher warned that in the next two years the US could still face a recession, which is about one in three.

“The Fed may decide that we need to survive a mild recession to reduce inflationary wage pressures,” he said. “But the good news starts with a very good place in the job market.”

“Now the economy is looking good,” he continued.

“We have good job growth, good consumer spending growth, so we are not in immediate danger of a recession, but the risk is increased, and even if we don’t get a recession, the next moment everything will be unpleasant. a couple of years. “

https://news.sky.com/story/us-federal-reserve-increases-interest-rates-by-05-to-combat-inflation-in-the-biggest-hike-in-decades-12605469

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