The US Federal Reserve raised its interest rate by another three-quarters of a point on Wednesday as part of its efforts to cool record-high inflation.
The central bank's decision comes after the country's inflation jumped to 9.1 per cent, its highest level in more than 40 years.
"Inflation is much too high," Fed Chairman Jerome Powell said in his remarks explaining the central bank's decision.
Mr Powell added that another "unusually large increase could be appropriate", as the Fed looks to control prices.
By raising interest rates, the central bank makes it more expensive to mortgage a house or take out a business loan. Consumers presumably react to the interest rate rise by borrowing and spending less, thus cooling the economy.
The aggressive actions from the Fed come amid criticisms that it was too slow to react to the rising cost of goods last year. Fed Chair Jerome Powell has suggested the central bank could achieve a "soft" or "softish" landing by bringing demand down and reining in prices without driving the economy into a recession.
"We're not trying to have a recession. We don't think we have to. We think that there's a path for us to be able to bring inflation down while sustaining a strong labour market," Mr Powell said.
He added that he does not believe the US is currently in a recession.
A 75-point rate increase brings rates to a 2.25 per cent to 2.5 per cent target range, equalling its estimate of a "neutral" level that neither restricts nor stimulates growth. The strategy is a significant shift for the central bank. Only four months ago, it set interest rates at 0 per cent and bought billions of dollars in bonds to support the economy during the Covid-19 pandemic.
Economists say the Fed's actions are the most aggressive since the 1980s, when the US economy was hamstrung by stagflation.
While prices have continued to rise, with home prices reaching a record, there are signs the pace of the increases has begun to slow, which may allow the central bank to ease up on its rate increases.
Global oil prices are trending down, with the US benchmark WTI falling to below $95 a barrel from its peak of more than $123 in March. Petrol prices at the pump have fallen 69 cents from the record of just over $5 a gallon in mid-June.
"My colleagues and I are acutely aware of that high inflation imposes significant hardship, especially on those least able to meet the higher costs of essentials like food, housing and transportation," Mr Powell said.
The US Commerce Department is expected on Thursday to report that gross domestic product grew at a turgid pace in the second quarter. GDP in the first quarter contracted by 1.6 per cent.
Two consecutive quarters of negative growth are typically considered a recession, although they are not the official criteria.
New employment data scheduled to be released next week will show whether robust job creation, considered an important strength of the US economy at the moment, continued in July.
Agencies contributed to this report