On Wednesday, the Federal Reserve voted to further increase interest rates by 0.25 percentage points to 5.25% in an effort to combat the inflation crisis that originated under President Biden’s administration.
“Economic activity expanded at a modest pace in the first quarter. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated,” the Federal Reserve explained in a statement.
“The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks,” the statement added.
Federal Reserve Chair Jerome Powell has previously said that the central bank is committed to bringing inflation down to 2% by increasing interest rates, and warned that it will cause “some pain” to Americans.
Powell made his comments during the European Central Bank forum last year when host Francine Laqua asked Powell, “If you’re speaking out to the American people to try and help them understand how long it will take for, you know, monetary policy to go back to something that resembles normalcy … what would you tell them?”
“I would say that we fully understand and appreciate … the pain people are going through dealing with higher inflation, that we have the tools to address that and the resolve to use them, and that we are committed to and will succeed in getting inflation down to two percent,” Powell responded.
At the time, the Federal Reserve’s expected interest rate peak was 4.5%, meaning that the current rate is nearly a full percentage point higher.