The US Federal Reserve raised its benchmark interest rate by three-quarters of a percentage point in its latest move to head off runaway inflation.
The central bank’s decision was in line with what economists had expected, although some thought the Fed could hike even further, a full percentage point.
Instead, the Fed raised its policy rate by 75 basis points for the third time in a row. The Fed rate is now at its highest point since 2008, and policymakers signal they are not done yet: Officials forecast they will raise their benchmark rate to about 4.4 percent in end of the year, a full percentage point higher than they had. had planned in June.
This aggressive path for rates speaks to the big problem that policymakers think is inflation. Inflation rates have risen to multi-decade highs around the world in recent years, prompting a series of actions by central banks to control it.
Other things being equal, central banks raise their rates when they want to cool an overheated economy, and cut them when they want to stimulate borrowing to grow the economy.
In a news conference following the decision, Fed Chairman Jerome Powell made it clear that the US central bank is not afraid to keep rates where they are, or raise them further, for as long as it takes to curb inflation.
“They want to be very sure that inflation is coming back down” before they contemplate cutting rates again, he said.
Barry Schwartz, chief investment officer at Toronto-based Baskin Wealth Management, says it will be difficult for the Fed to do its job of reducing inflation without causing pain to the broader economy.
“The big danger is that the Fed will overshoot … raising interest rates too fast, too high, causing the economy to get worse,” he told CBC News in an interview Wednesday.
The Fed’s move will make it more expensive to take out a mortgage or other forms of borrowing, and will certainly reduce consumer spending in the process. The average 30-year mortgage rate in the US topped 6.4% last week, its highest level in 14 years.