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Pressed by inflation in the US, the Fed changes the script again and announces the biggest rate hike in 28 years

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WASHINGTON- After underestimating inflation for months, the Federal Reserve, the central bank of the United States, announced the biggest increase in its interest rate since 1994, in another dramatic tightening of its monetary policy to try to control the increase in the cost of life, which in May marked a new peak for the last 40 years.

The Federal Reserve announced an interest rate hike of 0.75 percentage point and brought its benchmark rate to 1.5-1.75% , the same level it was at just before the coronavirus pandemic hit, but still below the value that economists consider that it must reach to stabilize the first global economy, jeopardized, like the rest of the world, by the worst inflationary resurgence since the beginning of the 80s.

Under enormous pressure from economists and the markets, the Fed’s decision marked another remarkable turnaround. For months, the president of the Fed, Jerome Powell, and the other members of the committee that defines the monetary policy of the central bank, ignored the seriousness of the inflationary rebound that emerged along with the reactivation of the pandemic, calling it “transitory”.

The war in the Ukraine and the persistence and amplitude of the price increases led Powell to bring forward the adjustment in the interest rate. But even as late as last month, Powell had frozen the possibility of further accelerating monetary policy tightening to control inflation, saying the Fed was “not actively considering” a hike of that magnitude.

But the latest inflation figure –8.6% annually in May– showed that the rise in the cost of living still seems far from slowing down and, even worse, had begun to touch expectations. To this was added the skid in the financial markets in recent weeks, which revealed a strong pessimism among investors, two events that now led Powell and the rest of the members of the committee that steers the Fed to hurry up -a once again – the fight against inflation.

Already the previous month, the Fed had implemented the most aggressive interest rate correction since 2006, and Powell had anticipated that they expected to raise rates half a point in the next two meetings. But reality forced the Fed to change the script again, announcing a rise of 0.75 points, the highest in 28 years .


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