The US Federal Reserve raised its benchmark overnight interest rate by three-quarters of a percentage point, an expected hike which highlighted the Central Bank's focus on inflation as the biggest topic of concern. Fed chief Jerome Powell said another "unusually large" hike may be appropriate in September if price pressures have not sufficiently abated, news agency Reuters reported. "Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures," the rate-setting Federal Open Market Committee (FOMC) said.
This will put the Fed's benchmark rate in a range of 2.25 per cent to 2.5 per cent, the highest level since 2018.
Investors worry aggressive rate hikes by the Fed to contain inflation that is at four-decade highs and similar action by central banks in Europe and Asia might derail global economic growth. US inflation has accelerated to 9.1 per cent, its highest since 1981. The US economy is slowing, but healthy hiring shows it isn't in recession, Treasury Secretary Janet Yellen had said on Sunday. Fed officials who publicly support a rate hike also cite a strong job market as evidence the economy can stand higher borrowing costs.
The 10-year Treasury yield was at 2.82 per cent early on Monday. On Friday, it fell to 2.76 per cent from 2.91 per cent late Thursday. Besides an easing of Treasury yields, falling prices for crude oil in recent weeks has raised hopes that inflation may be peaking. As of Monday, the average price of a gallon of regular gas was $4.36 per gallon. That's down 16 cents per gallon from a week ago, and 55 cents cheaper than one month ago, when the average price was $4.91 per gallon.
