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    US Federal Reserve Announces Steep Interest Rate Shock

    GovernanceFinance and EconomyUS Federal Reserve Announces Steep Interest Rate Shock
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    US Federal Reserve Announces Steep Interest Rate Shock

    The unexpected raise of the benchmark borrowing rate by 0.75 percentage points is the highest hike by the US federal reserve since November 1994. Fingers point to runaway inflation.

    In hours following President Joe Biden’s call to American oil refineries to produce more and profit less, the US federal reserve hiked its interest rate. The unexpected hike came as food and fuel shortages hitting the poorest in the world are pinching American citizens as well. This is the most severe indication of economic hardships following the COVID-19 pandemic and close on the heels of the Ukraine war and sanctions on Russia.

    “The crunch that families are facing deserves immediate action,” Biden wrote in a letter to seven oil refiners.

    Later, on Wednesday, the Federal Reserve put out a press statement saying that “The invasion [of Ukraine by Russia] and related events are creating additional upward pressure on inflation and are weighing on global economic activity.”

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    “In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions. The Committee is highly attentive to inflation risks.”

    This move by the US Federal Reserve is bound to have a cascading effect in SouthAsia as elsewhere in the world.

    The Ukraine-Russia war and the COVID-19 pandemic have disrupted supply chains all over and have driven up prices across the world. At the same time, the US government’s $5 trillion stimulus spending too has created huge demand for goods. Many in the US have complained that in the given scenario, the Federal Reserve has been slow to respond and dismissive of the price rises as a transitory happening that will resolve on its own.

    The Federal Open Market Committee said in a statement it released: “The Committee seeks to achieve maximum employment and inflation at the rate of two percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 1‑1/2 to 1-3/4 percent and anticipates that ongoing increases in the target range will be appropriate.”

    Soon enough, the Federal Reserve announced the highest rate increase in nearly 30 years, raising the benchmark borrowing rate by 0.75 percentage points.

    The Federal Open Market Committee, however, reaffirmed it remains “strongly committed to returning inflation to its 2 percent objective.”

    A statement issued by Federal Reserve Chair, Jerome H Powell issued later in the day, Wednesday, read: “We at the Fed understand the hardships high inflation is causing. We are strongly committed to bring inflation back down, and we are moving expeditiously to do so. We have both the tools we need and the resolve it will take to restore price stability on behalf of American families and businesses.”

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