The Federal Open Market Committee (FOMC), which decides on the monetary policy parameters within the US Federal Reserve, raised interest rates. And he did so in line with market expectations.
The Federal Reserve issued a statement Wednesday evening CST announcing a quarter-percentage point increase in the benchmark interest rate to 0.25 to 0.5 percent. This is the rate that applies to so-called open market operations. At this rate, commercial banks can trade government bonds with the Fed.
If the rate rises, banks have a greater incentive to buy bonds, thus the Fed siphons excess liquidity from the market, causing market interest rates to rise and dampening overall demand in the economy. This is exactly the target the Fed is now pursuing, as it wants to dampen inflation, which has been at a 40-year high for at least two months.
The Fed has also indicated that it is likely to continue raising interest rates at each of its six remaining monetary policy meetings this year. This will be by a quarter of a percentage point so that it will be between 1.75 % and 2 % at the end of this year.
