The Federal Reserve announced it will raise interest rates by half a percentage point and begin to shrink its assets in an effort to tamp down spiraling inflation.
The Federal Open Market Committee unanimously voted for the measures at its meeting on Wednesday. The committee decided to raise the benchmark federal rate to between 0.75 and 1 percent, up from 0.25 to 0.5 percent.
The interest rate increase marks the first time since 2000 that the Fed will raise interest rates by half a point.
Russia’s invasion of Ukraine “and related events are creating additional upward pressure on inflation and are likely to weigh on economic activity,” the Fed said in a statement on the raise. “In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions.”
The Fed will also begin shrinking Treasury and mortgage securities next month to trim the central bank’s $9 trillion in assets. The Fed will allow up to $30 billion in Treasury debt to expire in June, July, and August, and up to $60 billion in the months following. Meanwhile, Mortgage securities will be allowed to expire at a monthly cap of $17.5 billion, raised to $35 billion after three months.
The actions come after inflation reached a four-decade-high in March of this year, when prices rose 8.5 percent over March 2021. The Fed previously announced in March that it would raise interest rates for the first time since December 2018 in order to bring down inflation.