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US interest rates increase by 0.75% – the sharpest rise in nearly 30 years | Business News

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The US central bank has increased interest rates by 0.75% to combat inflation – the sharpest hike in 28 years.

The Federal Reserve signalled more rate rises to come and projected a slowing economy in the months ahead, along with growing unemployment.

Fed chairman Jerome Powell said that either a 0.5% or 0.75% increase seemed most likely next month.

The bank raised its benchmark rate on Wednesday to a range of 1.5% to 1.75%, which has not been seen since before the pandemic began.

The increase will make it costlier for people, businesses and governments to borrow, affecting consumer products like credit cards and mortgages.

Mr Powell stressed that the US economy was strong enough to handle the hike, saying: “We’re not trying to induce a recession.”

He had previously ruled out such a high increase but the unexpected spike in inflation last month – which many had hoped had peaked – forced the bank to change course.

Data published on Friday showed US inflation hit a 40-year high of 8.6% in May, one of the highest in the world.

In a statement, the Federal Open Market Committee cited the impact of the war in Ukraine and lockdown policies in China on soaring consumer prices.

Officials raised their forecasts for interest rates at the end of this year and next, expecting the median benchmark rate to climb to 3.4% by the end of 2022.

In March, that rate had been projected at 1.9%.

It is expected to reach 3.8% by the end of 2023, up from the March forecast of 2.8%.

The revision indicates that Fed officials expect inflation to last longer than they had before.

Mr Powell said he did not expect hikes of 75 percentage points to be “common”.

The tightening of monetary policy was accompanied by a downgrade to the Fed’s economic outlook, with the economy now seen slowing to a 1.7% rate of growth this year.

Unemployment is expected to increase to 3.7% by the end of 2022, hitting 4.1% in 2024.

Concerns about growing borrowing costs have prompted a sharp sell-off in bonds and stocks by investors, who anticipated Wednesday’s interest rate rise.

The S&P 500 entered bear market territory on Monday, having fallen 20% from its peak in January.

Other countries are also hiking interest rates to combat inflation.

In the UK, the Bank of England is expected to increase its rate by 0.25% to 1.25% on Thursday.

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