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US Fed raises rates by three-quarter point amid inflation surprises

Xinhua | Updated: 2022-06-16 05:58
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A man walks past the US Federal Reserve in Washington, DC, on March 16, 2022. [Photo/Xinhua]

WASHINGTON - The US Federal Reserve on Wednesday raised its benchmark interest rate by 75 basis points, marking the sharpest rate hike since 1994, as reports in recent days indicated inflation showed no clear sign of easing.

"Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures," the Fed said in a statement after a two-day policy meeting, adding that the Fed is "highly attentive to inflation risks."

The Federal Open Market Committee (FOMC), the Fed's policy-making body, decided to raise the target range for the federal funds rate to 1.5 to 1.75 percent and "anticipates that ongoing increases in the target range will be appropriate."

The statement showed that 10 committee members voted for the decision and one voted against it. Esther George, president of the Federal Reserve Bank of Kansas City, preferred to raise the target range for the federal funds rate by a half percentage point to 1.25 percent to 1.5 percent.

Prices are advertised for phone service along a busy shopping street in the Flatbush neighborhood of Brooklyn on June 15, 2022 in New York City. Fed makes the biggest rate hike since 1994 in an attempt to ease inflation. [Photo/Agencies]

The Fed's newly released quarterly economic projections showed that Fed officials' median projection of personal consumption expenditures (PCE) inflation is 5.2 percent by end of this year, up from 4.3 percent in March projection.

The median FOMC projection for year-end federal funds rate has jumped to 3.4 percent, much higher than the 1.9 percent projected in March.

Desmond Lachman, senior fellow at the American Enterprise Institute and a former official at the International Monetary Fund, told Xinhua that the inflation number released last week was higher than the Fed expected, and the Fed is determined to "regain control over inflation".

The US Labor Department reported Friday that consumer price index (CPI) skyrocketed 8.6 percent in May from a year earlier, marking the third straight month of inflation over 8 percent and hitting a new four-decade high. The figures, which exceeded consensus estimates, dashed hopes that inflation had peaked.

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