The Federal Reserve, the central bank of the United States, today decided to raise the basic interest rate by 0.5 percentage point, to 0.65 to 1% per year. This is the biggest increase in 22 years, amid record inflation in the country.
In March, inflation reached a 40-year high of 8.5%, driven by the war in Ukraine.
The Federal Open Market Committee announced the change at the end of a two-day monetary policy meeting in Washington. The decision should impact markets internationally, as a higher yield on US stocks, considered the safest economy in the world, reduces the attractiveness of securities from emerging countries, such as Brazil. In addition, dollar loans can become more expensive for developing economies.
The Fed’s signal is that more increases of similar magnitude may be on the way. This was the second consecutive rise in interest rates since March this year. Before, the municipality had not raised the index since 2018.
In a statement, the Fed’s Federal Open Market Committee said it was “highly aware of the risks of inflation.” “Inflation remains high as the war in Ukraine and new coronavirus lockdowns in China threaten to keep the pressure high,” they said.
The statement said the Fed’s balance sheet, which jumped to about $9 trillion as the central bank tried to protect the economy from the Covid-19 pandemic, could fall by $47.5 billion a month through August. . The reduction of the bond portfolio is also an attempt to contain the rise in prices.
Fed officials did not release new economic forecasts after this week’s meeting, but data since the last meeting in March gave little sign that inflation, wage growth or a rapid pace of hiring had begun to slow.
*With information from Reuters and AFP