Federal Reserve officials on Wednesday raised interest rates by 75 basis points — the largest increase in nearly 30 years — in an effort to curb elevated inflation.
The Federal Open Market Committee raised the target range for the federal funds rate to a range of 1.5% to 1.75% following a two-day meeting that concluded Wednesday. It was the committee's third time raising rates in as many meetings after a 50-basis-point increase in May and a 25-basis-point increase in March.
Much like after its March and May meetings, the committee said in a statement that it anticipates "ongoing increases in the target range will be appropriate."
To that end, the committee's median projection for the federal funds rate is 3.4% at the end of the year — up from 1.9% projected in March and 0.9% projected in December — and 3.8% at the end of 2023.
Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices and broader price pressures, the committee said. Moreover, Russia's invasion of Ukraine and "related events are creating additional upward pressure on inflation and are weighing on global economic activity," the committee said. "In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions. The committee is highly attentive to inflation risks."
Consumer prices rose 8.6% year-over-year in May, the largest 12-month increase since the period ending December 1981, according to data from the Bureau of Labor Statistics released June 10.
Fed Chairman Jerome H. Powell began his news conference Wednesday by saying the central bank understands "the hardship that high inflation is causing. We're strongly committed to bringing inflation back down, and we're moving expeditiously to do so."
Ten of the committee's 11 members voted to raise the target range 75 basis points; only Esther L. George, president and CEO of the Kansas City Fed, voted no because she preferred to raise the target range 50 basis points.
Mr. Powell said the pace of additional rate hikes depends on incoming data and the evolving economic outlook. He noted that inflation "has surprised to the upside" over the past year and "further surprises could be in store."
He added, "Clearly, today's 75-basis-point increase is an usually large one, and I do not expect moves of this size to be common. From the perspective of today, either a 50-basis-point or 75-basis-point increase seems most likely at our next meeting."
The committee's next meeting is July 26-27.
