With the objective to contain inflation, the United States Federal Reserve raised interest rates by 0.5 points, leaving them between 0.75% and 1%. It is the second increase this year, they had already raised rates 25 basis points in March, and this is the largest increase in 22 years.
This doesn’t come as a surprise since Jerome Powell, chairman of the Federal Reserve, had made it clear that he would raise rates by 0.5 point several weeks ago.
The Federal Reserve wants to stabilize inflation, which in April stood at 8.5%, the highest in four decades.
In a press conference, Powell commented that “inflation is too high” and that the Federal Reserve “is moving quickly to reduce it.” Powell ruled out a 0.75% rise, as analysts had feared. “A rise of 0.75% is not on the council’s table,” he assured, explaining that it is very likely that a rise of 0.5% will be repeated in the next two meetings.
The challenge for the Federal Reserve is to keep raising rates to contain inflation without triggering a recession. Powell was convinced of the possibility of “a soft landing”, but also acknowledged that “it will not be easy to achieve”. The US economy already contracted 1.4% in the first quarter of this year, another contraction in GDP for the second quarter would spark a recession.
