US Fed hikes US interest rate 0.75 pp amid surging inflation

The US Federal Reserve (Fed) on Wednesday raised its benchmark interest rate by 0.75 percentage points, marking the sharpest rate hike since 1994, as data released in recent days showed no clear signs of easing in inflation.

Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures,” the Fed said in a statement after a two-day policy meeting, adding that the institution is “highly attentive to inflation risks.”

The US Labour Department reported on Friday that the consumer price index skyrocketed 8.6 percent in May from a year earlier, marking the third straight month of inflation over 8 percent and hitting a new four-decade high. The figures, which exceeded consensus estimates, dashed hopes that inflation had peaked.

Adam Posen, head of the Washington-based think tank Peterson Institute for International Economics, told China’s Xinhua News Agency that what matters most is “how high the Fed has to go” to control inflation.

“The speeding up or front-loading of hikes makes little difference to recession risk,” Posen said. “If they raise the projected terminal rate of this hiking cycle from around 3 percent to more than 4 percent, that would indicate that they may need a recession to bring down inflation.” Some analysts say the domestic and foreign policies of the US government and the imbalance of the economic structure of the country are the root cause of the inflation.

US enterprises and consumers are caught in higher costs of imported goods due to the long-term protectionist policies of the country’s government, whose deluge of strong stimulus policies and loose monetary policy as responses to the impact of the pandemic brought an imbalance between supply and demand, with the pace of production resumption failing to catch up with the recovery of consumption, analysts have said.

They also added that the US’ move to escalate the Russia-Ukraine conflict and impose willful sanctions against Russia has caused surges in the prices of crude oil and other bulk commodities, which have worsened inflation in the country.