The Federal Reserve on Wednesday hiked its benchmark policy rate by 75 basis points for the third time in a row, in an attempt to cool down decades-high inflation which has pushed the cost of living in the US. The hike is on expected lines as many economists had predicted the range, considering the high inflation number in August despite previous moves by the central bank.
The US’ inflation number for August came out at 8.3 per cent – this was unexpectedly high as many had expected it to come down as the Fed had already hiked interest rates in the previous two meetings, each time by 75 basis points.
After the rate hike, Fed chairman Jerome Powell said that he was strongly committed to bringing inflation back down to 2 per cent. “We have both the tool we need and resolve it will take to restore price stability on behalf of American families and businesses,” he said.
Powell said that price stability is the responsibility of the Federal Reserve and that without price stability, the economy does not work for anyone. “In particular, without price stability, we will not achieve a sustained period of strong labour market conditions that benefit all,” he said.
The median projection for the Fed rate is now 4.4 per cent at the end of this year – 1 percentage point higher than projected in June.
Speaking at the Jackson Hole summit, the Fed chair on August 26 had said that the central bank was moving its policy stance purposefully to a level that would be sufficiently restrictive to return inflation to 2 per cent.
Federal Reserve Governor Christopher J Waller earlier this month made it clear that the inflation was quite high and that the central bank would hike rate to bring it back to 2 per cent. Addressing the 17th Annual Vienna Macroeconomics Workshop in Vienna, Waller said that the inflation in the US was far too high, and it was too soon to say whether inflation was moving meaningfully and persistently downward.
He said the Federal Open Market Committee (FOMC) was committed to undertaking actions to bring inflation back down to our 2 per cent target. “This is a fight we cannot, and will not, walk away from,” the Governor added.
Waller said the fears of a recession starting in the first half of this year had faded away and the robust US labor market was giving the Fed the flexibility to be aggressive in its fight against inflation. “For that reason, I support continued increases in the FOMC’s policy rate and…I support a significant increase at our next meeting on September 20 and 21 to get the policy rate to a setting that is clearly restricting demand,” he had said.