The Federal Reserve announced on Wednesday that it will raise interests rates by a quarter of a percentage point, hiking rates for the first time since December 2018 in an effort to curb rising inflation.
Following their March meeting, Fed officials said in a statement that the Federal Open Market Committee would raise the benchmark federal funds rate in order to cool an overheated economy, bringing the rate to between .25 and .5 percent.
“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 Fed said in its March statement, adding that the committee “anticipates that ongoing increases in the target range will be appropriate.”
The Fed previously cut interest rates to near zero in March 2020, in order to prevent financial disruptions at the onset of the Covid pandemic and concurrent lockdowns of businesses.
The decision on Wednesday to begin raising rates comes after the Bureau of Labor Statistics reported a Consumer Price Index of 7.9 percent in February over the same month in 2021. The yearly increase in inflation is the highest recorded since 1982.
The Fed noted pressures on the economy stemming from supply-chain issues and Russia’s invasion of Ukraine.
“Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures,” the FOMC said in a press release. Regarding the war in Ukraine, “The implications for the U.S. economy are highly uncertain, but in the near term the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity.”