US Fed Declares 75bps Interest Rate Hike, FOMC Highly Attentive To Inflation Risks

On Wednesday, in line with the analysts' expectations, The US Federal Reserve raised its benchmark interest rate, after completing its Federal Open Market Committee (FOMC) meeting. The US government has been highly concerned with the mounting inflation rate and falling consumer confidence in the last few months. So, the interest rate hike is being used as a tool to squeeze liquidity in the economy which will help to control the inflation rate. The US CPI inflation rate was at around 9% YoY gain in the last month, standing at a 40-years high range again. The FOMC stated that the committee remains 'highly attentive' to inflation risks.

Earlier, the US Fed thought that the surge in inflation will be a temporary problem, it will be eased after the pandemic and investors do not need to worry about it. However, the central bank's anticipation has been proven to be vividly wrong. Supply chain bottlenecks, employment scenarios, and manufacturing are improving, but the high inflation rate is not cooling down. FOMC commented, "Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures." The decision of interest rate hike has been taken unanimously.

Jerome Powell, the Fed Chair has raised its policy rate by a total of 225 basis points this year since March, taking up a 1980s-style monetary policy. Reuters, in a report, stated, that the rate has been hiked "In an effort to cool the most intense breakout of inflation since the 1980s, with 'ongoing increases' in borrowing costs still ahead despite evidence of a slowing economy."

However, the Fed said that present jobs gains are 'robust' at present, while "recent indicators of spending and production have softened". The Fed thinks that the policy measure of hiking the rate is impacting the economy positively.