The Federal Reserve intensified its drive to tame high inflation by raising its key interest rate by three-quarters of a point — its largest hike in nearly three decades — and signaling more large rate increases to come
Federal Reserve Board Chair Jerome Powell speaks during a news conference at the Federal Reserve, May 4, 2022 in Washington. The Federal Reserve announced its largest interest rate hike since 1994 — a bigger increase than it had previously signaled and a sign that the central bank is struggling to restrain stubbornly high inflation.
The Fed’s decision to impose a rate hike as large as it did Wednesday was an acknowledgment that it’s struggling to curb the pace and persistence of inflation, which is being fueled by a strong labor market, pandemic-related supply disruptions and soaring energy prices that have been aggravated by Russia’s invasion of Ukraine.
Yet the Fed’s rate hikes are blunt tools for trying to lower inflation while also sustaining growth. Shortages of oil, gasoline and food are escalating prices. The Fed isn’t ideally suited to address many of the roots of inflation, which involve Russia’s invasion of Ukraine, still-clogged global supply chains, labor shortages and surging demand for services from airline tickets to restaurant meals.
Even if a recession can be avoided, economists say it’s almost inevitable that the Fed will have to inflict some pain — most likely in the form of higher unemployment — as the price of defeating chronically high inflation.
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