US central bank ponders huge rate hike

US central bank ponders huge rate hike

WASHINGTON (AFP/APP): 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
“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.
Fed Chair Jerome Powell will hold a press conference after the meeting to provide more details on the central bank’s plans.
President Joe Biden has fully endorsed the Fed’s battle against the steepest rise in prices in more than 40 years, as he watches inflation erode his popularity and deflect attention from other milestones, including a rapid recovery of the world’s largest economy and record job growth.

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