The US Federal Reserve on Wednesday announced that it is hiking its benchmark interest rate by 0.75%, or 75 basis points. That would make this the fourth consecutive 0.75% increase, and the sixth rate hike in this year alone.
The cost of food in the US is rising at the fastest pace since the 1970s oil embargo, with grocery prices up 13.5% in the 12 months to September - and wages are failing to keep pace.
This move by the US Fed is seen as an effort to tame the spiraling inflation and soaring cost of goods being felt by households in the US, as well as the world.
There is a political angle to it as well: consumers across the US are feeling the pain in their wallets, as the cost of consumer goods -- including gasoline -- continue to rise. The Republican Party is running with it as one of their key talking points to attack the Democrats, and polls show that President Biden's party is in for a trouncing at the US Midterm Elections, due to be held in November this year.
The Federal Reserve also signaled that future increases in borrowing costs could be made in smaller steps to account for what it called the "cumulative tightening of monetary policy" it has enacted so far. It added that its goal was to seek out a level for rates that were "sufficiently restrictive to return inflation to 2% over time."
"In determining the pace of future increases in the target range, the (Federal Open Market) Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments," officials at the US Fed told Reuters.
The hike is all but certain to cause jitters to markets on Thursday, even though a rate hike was expected. In addition, the hike is expected to further strengthen the US Dollar -- already at a near all-time high -- and cause even more capital flight to the US; a bad sign for developing economies -- such as India.
