The Federal Reserve raised a key interest by half a point on Wednesday to combat soaring inflation, which has hit the paychecks of American workers and bedeviled Democrats and the White House ahead of the November midterms.
The central bank raised its benchmark interest rate by 0.5% — the largest hike since at least 2000. The move is the second in as many months that the Federal Reserve has raised rates in hopes of tamping down runaway inflation.
Federal Reserve Chairman Jay Powell and the central bank’s Board of Governors blamed the hike on the economic fallout of Russia’s invasion of Ukraine and the lingering effects of the coronavirus pandemic.
“The invasion and related events are creating additional upward pressure on inflation and are likely to weigh on economic activity,” the board said in a statement. “In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions.”
Apart from raising interest rates, the Federal Reserve is also moving to reduce its $9 trillion holdings, mainly consisting of U.S. mortgage and treasury bonds. The move comes as inflation reached 8.4% last month and shows no signs of slowing.