Business

The US central bank has increased interest rates by 0.75% to combat inflation – the sharpest hike in 28 years.

The Federal Reserve signalled more rate rises to come and projected a slowing economy in the months ahead, along with rising unemployment.

The bank raised its benchmark rate to a range of 1.5% to 1.75%, which has not been seen since before the pandemic began.

The increase will make it costlier for people, businesses and governments to borrow, affecting consumer products like credit cards and mortgages.

The Fed’s chairman, Jerome Powell, had previously ruled out such a high increase but the unexpected spike in inflation last month – which many had hoped had peaked – forced the bank to change course.

Data published on Friday showed US inflation hit a 40-year high of 8.6% in May, one of the highest in the world.

In a statement, the Federal Open Market Committee cited the impact of the war in Ukraine and lockdown policies in China on soaring consumer prices.

More on Interest Rates

Officials raised their forecasts for interest rates at the end of this year and next, expecting the median benchmark rate to hit 3.4% by the end of 2022.

In March, that rate had been projected at 1.9%.

It is expected to reach 3.8% by the end of 2023, up from the March forecast of 2.8%.

The revision indicates that Fed officials expect inflation to last longer than they had before.

Mr Powell said he does not expect hikes of 75 percentage points to be common.

US inflation figures have prompted a sharp sell-off in bonds and stocks by investors who anticipated Wednesday’s interest rate rise.

The S&P 500 entered bear market territory on Monday, having fallen 20% from its peak in January.

Other countries are also raising interest rates to combat inflation.

In the UK, the Bank of England is expected to increase its rate by 0.25% to 1.25% on Thursday.

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