The Fed Passes Largest One-Off Rate Hike in 28 Years

According to reports on June 15, the Federal Reserve on Wednesday passed the largest one-time interest rate increase since 1994 in response to high inflation.

The U.S. central bank raised its benchmark interest rate by 0.75% after its June policy meeting. The interest range for that rate is now between 1.50% and 1.75%, matching the range before the collapse of the pandemic in early 2020.

“The Committee decided to raise the target range for the federal funds rate to 1.5% to 1.75% and anticipated that continued increases within the target range would be appropriate,” the Fed said in the announcement.

The rate hike was reportedly approved by 10 of the 11 voting members of the committee, with Kansas City Fed President Esther George voting against the rate hike.

Markets had already priced in a 0.75-point rate hike by the end of Monday’s trading session, with stocks plunging amid fears the Fed was too aggressive. Treasury markets are largely pricing in a 0.75-point rate hike from the Federal Open Market Committee (FOMC) at its July meeting. Traders generally see the benchmark rate at between 3.25% and 3.50% by the end of the year.

Investors had been expecting a half-point hike in interest rates at the June meeting, but hotter-than-expected inflation data on Friday raised concerns that the Fed will have to act sooner. U.S. inflation accelerated to 8.6% year-on-year in May, beating the average forecast of 8.3% and marking the fastest price growth since December 1981, according to the Consumer Price Index. The increase wiped out any hope that March represented a peak in inflation and suggested that addressing price growth may be harder than previously thought.