Newsman: The Federal Reserve raised interest rates Wednesday. “The invasion of Ukraine by Russia is causing tremendous human and economic hardship,” the rate-setting committee said in a statement. “The implications for the U.S. economy are highly uncertain, but in the near term the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity.”
The central bank raised its benchmark rate by a quarter percentage point, marking the beginning of the end of the ultra-easy money policies that have been in place since the early days of the pandemic.
The Commerce Department reported Wednesday that consumer spending at gas stations jumped 5.3% last month, while retail sales elsewhere declined.
This Interest rate hike is for the first time since 2018, kick-starting its efforts to tackle the country’s highest inflation in four decades.
Additional rate hikes are likely to follow in the coming months. On average, Fed policymakers said they expect interest rates, which have been near zero, to climb to around 1.9% by the end of this year.
“As I looked around the table at today’s meeting, I saw a committee that’s acutely aware of the need to return the economy to price stability and determined to use our tools to do exactly that,” Fed chairman Jerome Powell told reporters after the central bank’s rate-setting committee held its first in-person meeting since the beginning of the pandemic.
“It’s punishing for everyone,” Powell said. “If you’re a middle-income person, you’ve got room to absorb some inflation. If you’re at the lower end of the income spectrum, it’s very hard because you’re spending most of your money already on necessities and the price is going up.”
While the Fed’s initial rate hike was modest, Powell said larger and more frequent increases could follow if inflation doesn’t begin to decline soon, as officials expect. One member of the rate-setting committee, St. Louis Fed bank President James Bullard, wanted to raise rates by a half-percentage point on Wednesday.
Annual inflation reached 7.9% last month, reflecting the steepest rise in prices since 1982.
Fed policymakers lowered their forecast for economic growth this year to 2.8%, down from 4% that was projected in December.
