Friday, 1 July, 2022

US central bank ponders huge rate hike to combat price surge

WASHINGTON: The US Federal Reserve is poised to raise borrowing costs Wednesday amid the troubling acceleration of inflation, with the only question being whether officials will opt for the biggest hike in nearly three decades or a smaller step up.

The central bank seemed set to increase the benchmark interest rate again by 0.5 percentage points, but a resurgence of consumer and producer prices in May has fueled growing speculation of a 75-basis-point hike.

While some economists continue to argue that such an aggressive step would indicate rising panic among policymakers who are usually reluctant to surprise financial markets, others argue that the Fed is behind the curve and needs to react strongly to prove its resolve to combat inflation, reports AFP.

"It is possible that by Wednesday the only way for the Fed to surprise markets would be to raise rates by 50 bp," Harvard economist and former White House advisor Jason Furman tweeted.

If policymakers decide on a giant step, it would be the first 75-basis-point increase since November 1994.

The policy-setting Federal Open Market Committee is due to announce the rate decision at 1800 GMT at the conclusion of two days of deliberations.