US Federal Reserve raises interest rates by half a percentage point; biggest hike in 2 decades

Washington, May 4: The US Federal Reserve on Wednesday announced its biggest interest rate in 22 years in a battle to reduce lower inflation. It is lifting its benchmark interest rate by half a percentage point, to a range of 0.75% to 1% after a smaller rise in March, the US Central Bank said in a statement.

"Although overall economic activity edged down in the first quarter, household spending and business fixed investment remained strong. Job gains have been robust in recent months, and the unemployment rate has declined substantially. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures," the rate-setting Federal Open Market Committee said in a statement.

The statement further stated, "The invasion of Ukraine by Russia is causing tremendous human and economic hardship. The implications for the U.S. economy are highly uncertain. The invasion and related events are creating additional upward pressure on inflation and are likely to weigh on economic activity. In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions. The Committee is highly attentive to inflation risks."

The Fed's balance sheet, which soared to about $9 trillion as the central bank tried to shelter the economy from the Covid-19 pandemic, would be allowed to decline by $47.5 billion per month in June, July and August and the reduction would increase to as much as $95 billion per month in September, it said.

Policymakers did not issue fresh economic projections after this week's meeting, but data since their last gathering in March have given little sense that inflation, wage growth, or a torrid pace of hiring had begun to slow. Fed Chair Jerome Powell is scheduled to hold a news conference at 2:30 pm EDT, Reuters reported.