WASHINGTON–The Federal Reserve’s Open Market Committee has voted to increase interest rates by three-quarters of a percentage point, a quarter-point more than many analysts had expected as it seeks to temper ongoing inflation.
The increase is the largest rate hike since 1994, and will bump up borrowing costs for Americans across the economy.
“Overall economic activity appears to have picked up after edging down in the first quarter. Job gains have been robust in recent months, and the unemployment rate has remained low,” the FOMC said in announcing its decision. “Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.”
The Fed cited the invasion of Ukraine by Russia as causing “tremendous human and economic hardship” and for putting upward pressure on inflation and global economic activity, as well as COVID-related lockdowns in China for exacerbating supply chain disruptions.
“In support of these goals, the Committee decided to raise the target range for the federal funds rate to 1‑1/2 to 1-3/4 percent and anticipates that ongoing increases in the target range will be appropriate,” the FOMC said in its statement. “In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that were issued in May. The Committee is strongly committed to returning inflation to its 2 percent objective.”
More Hikes Coming
"The FOMC followed through with the largest rate hike since 1994, and the median committee member expects another 175 basis points of hikes before year end," said NAFCU Chief Economist and VP-Research Curt Long. "That is a sharp departure from the committee’s forecast three months ago, and the rest of the economic projections bear that out. Real GDP was revised down heavily for 2022 and 2023, and the unemployment rate is projected to be higher, climbing above 4% by 2024. It is clear the FOMC believes it has no choice but to flirt with a recession in order to address inflation, and credit unions should seek to remain as nimble as possible in a rapidly changing and highly uncertain economic environment."
How Votes Were Cast
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; James Bullard; Lisa D. Cook; Patrick Harker; Philip N. Jefferson; Loretta J. Mester; and Christopher J. Waller.
Voting against this action was Esther L. George, who preferred at this meeting to raise the target range for the federal funds rate by 0.5 percentage point to 1-1/4 percent to 1-1/2 percent, the Fed said. Patrick Harker voted as an alternate member at this meeting.