Federal Reserve announces biggest interest rate hike since 2000

The Federal Reserve moved to tamp down soaring inflation in the US on Wednesday, announcing the sharpest rise in interest rates in over 20 years.

More rate rises are expected. The Economist Intelligence Unit expects the Fed to raise rates seven times in 2022, reaching 2.9% in early 2023. Starting in June, officials also plan to shrink their $9tn asset portfolio, a policy move that will further push up borrowing costs.

Thanks in large part to the unprecedented impact of the coronavirus on the global economy, inflation is now running at a 40-year high in the US. In March, the Consumer Price Index (CPI) was 8.5% higher than it was a year ago, driven up by rising prices for gasoline, shelter, and food. The increasing costs of essential goods and services are now outstripping average wage gains.

Powell said the economy remained strong and that he was confident the Fed could act without triggering a recession but he warned it would act aggressively to tackle inflation.