https://sputniknews.com-The US Federal Reserve approved on Wednesday its first increase in interest rates in three years, which it has kept low over fears of harming the fragile post-lockdown recovery.
The US central bank has increased interest rates by a quarter of a percentage point, saying that Russia’s special operation in Ukraine and Western economic sanctions and boycotts against Russia had caused already-rising inflation to accelerate.
“The Committee seeks to achieve maximum employment and inflation at a rate of 2 percent over the longer run. With appropriate firming in the stance of monetary policy, the Committee expects inflation to return to its 2 percent objective and the labor market to remain strong,” the Federal Reserve Board of Governors said in a Wednesday statement.
“In support of these goals, the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent and anticipates that ongoing increases in the target range will be appropriate. In addition, the Committee expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting,” they added.
Going into the meeting on Wednesday, the Federal Funds Rate stood at 0.08%, representing the interest rate at which depository institutions such as banks and credit unions can lend reserve balances to other banks on an overnight basis. The higher the rate, the more money banks are required to hold in their vaults and the less they can lend, which results in less money creation. However, the Fed has kept interest rates near zero for years over fears that raising them would collapse an economy made fragile first by the 2008 financial crash, then the 2020 shutdowns at the start of the COVID-19 pandemic.
US stocks have suffered for several days in anticipation of the news, with one-third of financial experts telling CNBC over the weekend that they expected a US recession before the end of the year and half saying they expected a European recession before then. The Wall Street Journal noted on Wednesday that anticipation of the rate hike had hurt tech stocks particularly badly, but after the Fed’s announcement, US stocks rebounded sharply, with the yield on the benchmark 10-year US Treasury note hitting its highest point in three years.
On Thursday, the US Bureau of Labor Statistics (BLS) released its March Consumer Index Summary, revealing that the average price of consumer goods had increased by 7.9% over the previous 12 months – the benchmark metric of inflation of the US dollar’s value. Inflation has been driven upward by rising shipping costs associated with COVID-19 pandemic safety measures, hitting a 40-year high earlier this year, and the Biden administration’s boycott of Russian petroleum announced last week only added fuel to the fire, as it were.