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US Fed unveils second big rate hike in a row to fight inflation

The US Federal Reserve on Wednesday raised its benchmark interest rate by three-quarters of a percentage point for a second straight meeting as it battles soaring consumer prices.

Washington, 27 July 2022 (dpa/MIA) – The US Federal Reserve on Wednesday raised its benchmark interest rate by three-quarters of a percentage point for a second straight meeting as it battles soaring consumer prices.

The Fed’s overnight bank lending rate now has a range of of 2.25% to 2.5%, in line with analyst forecasts.

This is the fourth hike since March and comes in response to inflation hitting a four-decade high last month.

In June, the consumer price index increased 9.1% from a year ago, with energy, food and housing costs all shooting up.

In its accompanying statement, the Fed reiterated that it anticipates that ongoing increases will be appropriate.

The hikes make loans more expensive and slow down demand. This helps to lower the inflation rate, but also weakens economic growth and could also result in a higher unemployment rate.

At 3.6%, the unemployment rate in the US is currently at a very low level: According to the Department of Labor, around 5.9 million people were without a job in June. Before the outbreak of the pandemic in February 2020, the figure had been 5.7 million.

The decision to continue raising interest comes even though the Fed acknowledged that recent indicators of spending and production have softened, leading to concerns about a potential recession.

The Fed said that the elevated inflation reflects supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.

In addition to raising interest rates, the Fed said it would also continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities.

The monetary policy decision was unanimous, with Kansas City Fed President Esther George joining her colleagues after favouring a 50 basis point rate hike at the June meeting.

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