The U.S. Federal Reserve mulls huge rate hike to combat price surge
The U.S. Federal Reserve. /Xinhua

The U.S. Federal Reserve. /Xinhua

The U.S. Federal Reserve is poised to raise borrowing costs Wednesday amid the troubling acceleration of inflation, with the only question being whether officials will opt for the biggest hike in nearly three decades or a smaller step up.

The central bank seemed set to increase the benchmark interest rate again by 0.5 percentage points, but a resurgence of consumer and producer prices in May has fueled growing speculation of a 75-basis-point hike.

While some economists continue to argue that such an aggressive step would indicate rising panic among policymakers who are usually reluctant to surprise financial markets, others argue that the Fed is behind the curve and needs to react strongly to prove its resolve to combat inflation

"It is possible that by Wednesday the only way for the Fed to surprise markets would be to raise rates by 50 bp," Harvard economist and former White House advisor Jason Furman tweeted.

If policymakers decide on a giant step, it would be the first 75-basis-point increase since November 1994.

The policy-setting Federal Open Market Committee is due to announce the rate decision at 1800 GMT at the conclusion of two days of deliberations.

Fed Chair Jerome Powell is scheduled to hold a press conference after the meeting to provide more details on the central bank's plans.

President Joe Biden has fully endorsed the Fed's battle against the steepest rise in prices in more than 40 years, as he watches inflation erode his popularity and deflect attention from other milestones, including a rapid recovery of the world's largest economy and record job growth.

U.S. central bankers began raising interest rates off zero in March as buoyant demand from American consumers for homes, cars and other goods clashed with transportation and supply chain snarls in parts of the world where Covid-19 remained and remains a challenge.

That fueled inflation, which got dramatically worse after Russia invaded Ukraine in late February and Western nations imposed steep sanctions on Moscow in response, sending food and fuel prices up at a blistering rate.

U.S. gasoline prices have topped $5.00 a gallon for the first time ever and are setting new records daily.

Economists thought March was the peak for consumer price hikes, but the rate spiked again in May, jumping 8.6 percent in the latest 12 months, and wholesale prices surged as well, almost entirely due to soaring costs for energy, especially gasoline.


Source(s): AFP

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