On Wednesday, the Federal Reserve raised its benchmark interest rate 0.75% as the central bank tries to fight the record high inflation that has originated under President Biden’s administration.
The rate hike was a repeat of the increase put in place last month and comes after data from the Bureau of Labor Statistics showing that prices soared an astounding 9.1% in June from the year before – the highest increase since November 1981.
“Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures,” the Federal Reserve said in a statement.
“Russia’s war against Ukraine is causing tremendous human and economic hardship. The war and related events are creating additional upward pressure on inflation and are weighing on global economic activity,” the statement added.
The Federal Reserve also warned that additional rate increases are expected in order to combat inflation.
As explained by ABC News, “An increase to the benchmark interest rate raises borrowing costs for consumers and businesses, which in theory should slash inflation by slowing the economy and eating away at demand. That means borrowers will face higher costs for everything from car loans to credit card debt to mortgages. But the approach risks pushing the economy into a recession.”
Even before the interest rate hike, the U.S. economy was already expected to be entering a recession. The U.S. economy contracted by 1.6% in the first quarter of 2022 and is projected to shrink by an additional 1.2% in the second quarter of 2022.
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