Federal Reserve raises interest rates by half point to fight inflation

Largest increase in 22 years comes as inflation is highest in four decades

The Federal Reserve has raised its benchmark interest rate by half a percentage point in a continued effort to fight inflation.

The central bank of the United States announced the largest increase in 22 years as it attempts to deal with the worst inflation the country has seen in four decades.

The move came after the Fed increased its benchmark rate in March by a quarter of one percentage point, its first raise since 2018.

The impact of a rates increase by the Fed is felt by Americans in higher interest rates on products such as credit cards, mortgages and business loans. Since the Fed raised its rate in March, 30-year fixed-rate mortgages have increased by more than one per cent to stand at above 5 per cent.

“The Committee is highly attentive to inflation risks,” said the Federal Open Market Committee in its latest policy statement and the vote to increase the rate was a unanimous one.

“The invasion of Ukraine by Russia is causing tremendous human and economic hardship. The implications for the U.S. economy are highly uncertain. The invasion and related events are creating additional upward pressure on inflation and are likely to weigh on economic activity,” the Fed said.

“In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions.”

Prices in the US have been rising faster than any time since the 1980s, up 8.5 per cent in March compared to the same month last year, according to the government’s Consumer Price Index.

Observers say that the current inflation has been caused by issues in the supply chain, combined with increased production costs, and consumer demand among other factors.