US Central Bank continues to increase interest rate by 0.75pc in bid to tackle inflation

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The Central Bank raised interest rates by three-quarters of a percentage point (0.75 percent) on Wednesday. The Fed warned that tackling inflation will mean an increase of borrowing costs in a move that could signal it may be nearing a point of significant change in the progress of the economy.

The move gives the central bank the option to increase rates by smaller increments in the future which would see an end to its three-quarter-of-a-percentage-point rises by December.

This would then allow the Fed to implement a more preferable increase of half a percentage point for example.

This would leave policymakers space to keep increasing interest rates if the rate of inflation does not begin to slow.

In a news conference following the Central Bank’s latest policy meeting, Fed Chair Jerome Powell said he wanted to be clear that policymakers will be able to continue increasing rates.

He said that despite the fact that they may scale back future increases, he said, it is still undecided how high rates may need to be pushed to limit the rise in inflation.

Powell said that policymakers are determined to “stay the course until the job’s done”.

He added that the Fed may move quickly but “there’s some ground to cover” for the target federal funds rate to reach a “sufficiently restrictive” level which will slow inflation.

According to the Fed Chair, the end goal is “very uncertain…We’re going to find it over time.

“The question of when to moderate the pace of increases is much less important than the question of how high…and how long to keep monetary policy restrictive.”

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Powell noted that it is “very premature” to consider when the US Central Bank may halt its rate increases.

Key US stock indicators spiked following the release of the Central Bank’s statement which vowed to consider economic risks more obviously when deciding the size of further rate increases.

However, the gains were removed following Powell’s statement and the day concluded slightly lower with the S&P 500 index falling by 2.5 percent and the Nasdaq Composite plummeting by over three percent.

Yields on US Treasury securities sharply dropped following the Fed statement but the 2-year note which is most sensitive to Fed policy expectations then increased by 6 basis points to approximately 4.61 percent.

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According to Bill Nelson, former top Fed staffer, the Fed’s policy statement seems to line up the central bank for further rate increases.

Mr Nelson said that the document “implied that [the Fed] may be aiming for a higher medium-term level for the feds funds rate than currently expected.”

Investors were hoping to see a signal from the Fed that its sequence of tightening measures may be eased following the policy rate with has risen from near zero in March to now a range of 3.75 percent and 4.00 percent.

This is the fastest monetary tightening in the United States since the early 1980s.



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