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in the face of inflation, the Fed makes the largest rate hike since 1994

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The US central bank (Fed) raised its key rates by three quarters of a point on Wednesday, June 15, the largest increase since 1994, in order to fight against inflation which is not weakening. This is the third increase in a row in these rates, which are now in a range between 1.50 and 1.75%, and set the tone for loans granted to individuals and businesses.

The Fed said in a statement issued after the meeting of its Monetary Policy Committee (FOMC), that it expected further increases. Most of its leaders see the rates rising, by the end of the year, to the range of 3.25 to 3.50%. The institution also assured that it remained “committed to bringing inflation back to its 2% target”.

This sharp rate hike was put on the table only days ago, when the Fed had previously been pricing in a half-percentage-point hike, which was already the fastest hike since 2000.

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Inflation projections revised upwards

But the inflation figures in May had the effect of a cold shower: the rise in prices did not slow down, as it had been the case in April. It even reached a new record in 40 years, at 8.6% over one year.

Federal Reserve (Fed) officials also revised their inflation projections upwards on Wednesday, now expecting 5.2% in 2022 and 2.6% in 2023, when they forecast, in March, respectively 4.3 % and 2.7%. The institution recalls that the Russian invasion of Ukraine and the sanctions against Russia have created “additional upward pressure on inflation and weighing on global economic activity”.

Also, the Fed anticipates weaker than expected economic growth this year in the United States, at 1.7%, against 2.8% previously. She also expects the unemployment rate to rise to 3.7% at the end of 2022 and 3.9% in 2023, when she previously saw it at 3.5%, its February 2020 level, just before the health crisis, which was the lowest in 50 years.

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