Federal Reserve announced Wednesday, in an unprecedented effort to stop inflation spiralling out of control, that they would be raising interest rates by three quarters of a percent.
This is the highest single rate jump since 1994.
“The labor market is extremely tight and inflation is much too high,” said Federal Reserve Chair Jerome Powell in a news conference after the historic decision by the nation’s central bank.
“We thought that strong action was warranted at this meeting and we delivered on that,” Powell said. “It is essential that we bring inflation down, if we are to have a sustained period of strong labor market conditions that benefit all.”
The Fed has hinted for weeks it might increase interest rates by half a percentage point, as happened in May. But, a joltingly pessimistic inflation report released last week and the continued invasion of Ukraine by Russian forced the financial officials to take stronger actions, they said.
Not helping matters were increasing signs that the stock market and the American people have little faith in current economic policies.
The interest rate hike will make mortgages, auto loans and many business investments more expensive.
The economic strategy of raising interest rates is designed to chill an overheated financial world by getting consumers to spend less money. In turn, demand for services and goods are expected to go down, which helps lower prices.
It is a risky strategy, and many investors and business owners fret that the effort to lower inflation will instead create a new recession and rounds of layoffs.
“We don’t seek to put people out of work, of course. We never think too many people are working, and fewer people need to have jobs,” Powell said.
“But we also think you really cannot have the kind of labor market we want without price stability. We have to go back and establish price stability,”He stated.
Prices climbed last month by 8.6%, compared to 2021. The skyrocketing costs of utilities, gas, food, and housing have reached their highest point in over 40 years.
These increases, sometimes as high as 50%, have resulted in Americans paying significantly more for everything they need, from fuel to electricity.
Wednesday was also marked by the Fed’s announcement that more increases in lending rates would likely be made in the months ahead, although it didn’t specify how much or when.