The Federal Reserve, the U.S. central bank, announced on the 15th (local time) that it would raise its key interest rate by 0.75 percentage points. It is the first time in 28 years that the Fed has stepped on the so-called “Giant Step” that raises the benchmark interest rate by 0.75 percentage points at a time since 1994. The government has taken a strong stance to raise interest rates sharply to curb inflation, the worst in 40 years. The Fed said it could raise its key interest rate by 0.5 to 0.75 percentage points next month.
In a statement issued after a two-day Federal Open Market Committee (FOMC) regular meeting, the Fed said it would raise its key interest rate by 0.75 percentage points. “Inflation is still high, reflecting an imbalance in demand and supply related to the pandemic, high energy prices and widespread inflationary pressures,” the Fed said in a statement. The Fed went on to point out, “Russia’s invasion of Ukraine causes enormous human lives and economic difficulties, which puts additional upward pressure on inflation and burdens global economic activities,” adding, “China’s Corona-related blockade is also likely to worsen supply chain disruptions.”
As a result, the U.S. benchmark interest rate rose from 0.75 to 1.00% to 1.50 to 1.75%. Earlier, the Fed raised interest rates by 0.25 percentage points in March, ending the three-year zero-interest rate era, and raising interest rates by 0.5 percentage points last month. It was the first time in 22 years that the Fed has raised interest rates by 0.5 percentage points, so-called “giant step.”
The Fed’s rapid increase in interest rates is due to the worst inflationary pressure of the century, with the U.S. consumer price growth breaking its 40-year high. The U.S. Consumer Price Index (CPI) in May, released on the 10th, rose 8.6% compared to the same period last year. It was the largest increase in 40 years and 5 months since December 1981. The CPI, which had slowed down for a while, showed a steep rise again, contrary to expectations.