Federal Reserve announces biggest interest rate hike since 1994

The rate rise came after more bad news on inflation late last week sent US stock markets into a tailspin, presenting the Fed and the Biden administration with an escalating crisis amid fears that runaway inflation has now spread through the economy.

The Fed cut rates to near zero at the start of the coronavirus pandemic, as the US and global economies effectively shut down. It increased rates for the first time since 2018 in March this year, but the increase did nothing to tamp down rising prices.

There are already signs that consumers are cutting back in the face of rising inflation. Retail spending fell for the first time this year in May, the commerce department said on Wednesday. Home sales have fallen for three consecutive months and consumer confidence hit a record low between May and June.

Last week the labor department announced consumer prices were 8.6% higher in May than they were a year ago. The increase was broad-based, with food and fuel prices rising alongside rent, airfares and car prices.

Across the country, consumers are being confronted by rising prices and shortages. Nationally, gas now costs an average of $5 per gallon, close to $2 higher than a year ago. In California, a gallon of gas now costs more than $6, up from just over $4 a year ago.

Supply chain disruptions and other issues have led to shortages of basic necessities including tampons and baby formula.