In an effort to combat elevated inflation, the Federal Reserve on Wednesday announced the biggest increase in interest rates in almost thirty years.
The Fed revealed that it has decided to raise the target rate for the federal funds rate by 75 basis points to 1.50 to 1.75 percent, marking the biggest rate hike since 1994.
The widely expected move by the Fed comes as a recent report from the Labor Department showed consumer price inflation at the fastest annual rate in forty years.
Citing its goals of maximum employment and inflation at a rate of 2 percent over the longer run, the Fed also indicated that further rate hikes are likely to be appropriate.
The Fed also said it will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities.
In its assessment of the U.S. economy, the Fed said overall economic activity appears to have picked up after edging down in the first quarter.
The central bank described recent jobs gains as “robust” and noted the unemployment rate has remained low.
“Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures,” the Fed said.
However, the decision to raise interest rates by 75 basis points was not unanimous, as Kansas City Fed President Esther George preferred raising rates by 50 basis points.
The Fed’s next monetary policy meeting is scheduled for July 26-27.
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