Fed decision risks accelerating global recession

Fed decision risks accelerating global recession

Faced with a tricky situation, the US Federal Reserve on Wednesday opted for the bitter pill of raising the interest rate by a surprising 75 basis points, the biggest rate hike since 1994, as it seeks to tame inflation, despite warning that the decision may increase the risk of global recession. The accelerating inflation, the highest in more than four decades, has piled pressure on US financial policymakers to hike the borrowing rate. Short-term borrowing costs are now in a target range between 1.50 per cent and 1.75 per cent. Speaking to reporters shortly after the decision, Fed chairman Jerome Powell said the central bank has “the tools and the resolve” to push the inflation down. He made it clear that next month, the Fed will raise the rate by “either a 50-basis-point or a 75-basis-point.” The persistent inflation rate would remain elevated at 5.2 per cent at the end of the year, according to Powell, well above its target of 2 per cent. However, Fed expects the rate to slow down to 2.6 per cent in 2003, a seemingly ambitious target. Thus, the Fed has adopted a hawkish policy that may lead to a slowing of the economy with