The US Federal Reserve (Fed) raised its reference interest rate today to face the highest inflation in 40 years and the chances of it getting worse due to the Russian invasion of Ukraine.
The Fed has decided to raise the short-term interest rate by 0.25 percentage points so that it will be between 0.25 and 0.50 percent, and the decision was made by the Monetary Policy Committee almost unanimously.
The US Federal Reserve said that economic activity and employment have continued to strengthen since the last meeting on January 25 and 26. But the bank pointed out that inflation remains high with uneven supply and demand.
The monetary institution forecasts inflation of 4.33 percent in 2022, which is almost twice as much as it was forecasted at the end of January.
After a two-day meeting, the Fed’s monetary policy committee pointed out the risks posed by Russia’s military invasion of Ukraine and sanctions.
“In the short term, invasion and related events may put additional pressure on rising inflation and negatively affect economic activity,” the statement said.
Bank officials predict an additional increase in interest rates this year, and a smaller increase in gross domestic product for 2022 than previously forecast, expecting it to be 2.8 percent instead of 4.0 percent as previously planned.
In March 2020, the Fed almost lowered its interest rate to zero to support the economy, which was then facing the spread of kovid-19.
However, in the last year, the US economy has been hit by a wave of rising prices.
Fed President Jerome Powell said that the institution will do everything it can to curb inflation without blocking economic development at the same time.
Markets expect that interest rates will be raised seven times this year, which would raise the reference interest rate to about 1.75 percent.
The Fed last raised interest rates in December 2018, in the midst of a trade war with China. That decision was sharply criticized by the then President Donald Trump.