US Federal Reserve raises interest rates by 50 basis points

Rate increase is largest since 2000

The Federal Reserve building in Washington. AFP

The US Federal Reserve on Wednesday decided to raise its benchmark short-term interest rate by half a percentage point, its most aggressive decision since May 2000 as it vies to address the country's worst levels of inflation in 40 years.

The 50 basis point increase takes the Fed's key rate to a range of 0.75 per cent to 1 per cent, with the committee saying it will consider further large rate hikes in the future.

Economic activity has declined so far in 2022 and inflation hurt American wallets, affecting petrol and food prices.

Inflation reached 6.6 per cent last month, making it the highest point reached in four decades.

“Inflation is much too high and we understand the hardship it is causing and we are moving expeditiously to bring it back down,” Fed Chairman Jerome Powell said.

But spending as well as jobs growth has continued. Unemployment has remained low as well.

"It's a strong economy. Nothing about it suggests that it's close to or vulnerable to a recession," he told reporters

The statement added that the committee hopes to return inflation to 2 per cent.

“Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices and broader price pressures,” the committee statement read.

It cited the invasion of Ukraine by Russia and the pandemic — which has led to recent lockdowns in China — as contributors to record-high levels of inflation in the US as well as supply chain disruptions.

“No surprise in the Fed's decision,” said Naeem Aslam, a chief market analyst at AvaTrade.

“The Fed has increased the interest rate by 50 basis points but the fact that this was already anticipated by the markets has calmed some nerves.”

Wall Street stocks rose 2 per cent shortly after the decision.