The US Federal Reserve increased its main interest rate by three-quarters of a percent, the largest increase in almost three decades, and signalled that more large rate increases are on the way, boosting the likelihood of another recession. The Fed’s decision, announced following its most recent policy meeting, would boost its benchmark short-term rate to a range of 1.5 percent to 1.75 percent, affecting many consumer and commercial loans.
- The policymakers forecast their key rate to reach a range of 3.25 percent to 3.5 percent by the end of the year, the highest level since 2008, implying that most kinds of borrowing will become significantly more expensive.
- With inflation at a four-decade high of 8.6%, spreading to other sections of the economy and showing no signs of dropping, the central bank is stepping up its efforts to tighten lending and curb growth.
- Americans are also beginning to believe that rising inflation will endure longer than it did previously.
- This mentality could instil an inflationary mindset in the economy, making it more difficult to return inflation to the Fed’s target of 2%.
In reaction to the Fed’s actions, borrowing costs have already increased dramatically throughout most of the US economy, with the average 30-year fixed mortgage rate surpassing 6%, its highest level since before the 2008 financial crisis, up from just 3% at the start of the year. The yield on the 2-year Treasury note, which is used as a benchmark for corporate borrowing, has risen to 3.3 percent, the highest since 2007.