US Federal Reserve hikes rate by 75bps, the biggest in 28 years

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US Federal Reserve hikes rate by 75bps, the biggest in 28 years

Amid conflicting narratives on whether the US Fed would have the courage to risk an impending recession by aggressively hiking its benchmark borrowing cost, the US Central Bank had raised its benchmark lending rate by 75 bps (Basis Percentage Point) to 1.50 per cent, remarking the highest rate-hike since 1994 aimed at wrestling against a lacerating surge in inflation indicators.

Fanning up the flames further of a US recession in a near-term, the US Fed also raised an alarming bell saying that the economy would more likely to slow down over coming months, while unemployment rates would rise, too.

In point of fact, since last week’s US inflation data, money markets across the US were bracing for a 75bps rate-hike, as US Consumer Price Index jumped by 8.6 per cent on a year-on-year basis last month, the highest in forty years.

On top of that, the US Fed’s core inflation indicator, Core PCE (Personal Consumption Expenditure) Price Index was hovering at 6.3 per cent higher compared to the same time a year earlier, more than a three-fold of US Federal Reserve’s target range of 2.0 per cent.

US Central Bank raises interest rate by 75 bps

Besides, latest move from the US Fed had raised the short-term borrowing cost to a range between 1.50 per cent and 1.75 per cent, while Fed policymakers have projected that US benchmark borrowing cost could jump to 3.4 per cent by end-2022, casting a darker cloud over US money markets.

Meanwhile, followed by the US Fed’s two-day long policy meet, Central Bank’s policy-setting Federal Open Market Committee said in a statement, “Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices and broader price pressures.

The committee is strongly committed to returning inflation to its 2% objective”. Although, no Fed policymakers had directly pointed towards an upcoming recession, yet they had forecasted a 1.7 per cent contraction in US economy this year, while unemployment rate is projected to rise to 3.7 per cent by end-2022.