The US Federal Reserve went in for a fourth straight 75 basis points interest rate hike – 3.75 per cent to 4% – to achieve maximum employment as it chases an inflation target rate of 2%.
The Fed cited recent indicators as pointing to modest growth in spending and production as job gains have been robust in recent months while unemployment was seen to be low.
However, it noted that “inflation remains elevated, reflecting supply and demand imbalances due to the pandemic, higher food and energy prices, and broader price pressures”.
Furthermore, the Russia-Ukraine war is causing “tremendous human and economic hardship as it creates additional upward pressure on inflation and weighs down global economic activity”.
According to a Fed statement on Wednesday, its Federal Open Market Committee (FOMC) anticipates “ongoing increases in the target range will be appropriate in order to attain a monetary policy stance that is sufficiently restrictive to return inflation to 2% over time”.
In determining the pace of future increases, the FOMC will take into account the cumulative tightening of monetary policy and economic and financial developments.
The committee said it would continue reducing its holdings of Treasury securities and agency debt as well as agency mortgage-backed securities, as described in the “Plans for Reducing the Size of the Federal Reserve’s Balance Sheet” that were issued in May.
The statement added that the FOMC will continue to monitor the implications of incoming economic data and would be “prepared to adjust its monetary policy stance appropriately if risks emerge”.
The assessments will take several aspects into account, including public health data, labour market conditions, inflation pressures and expectations, and financial and international developments, it said.
Source: The Nation