Federal Reserve Announces Steepest Interest Rate Increase in Over 20 Years

The Fed approves a half-point hike, as well as plans to shrink its nearly $9 trillion balance sheet.

Dan Avery Writer
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Expertise Personal Finance, Government and Policy, Consumer Affairs
Dan Avery
US Federal Reserve chair Jerome Powell

US Federal Reserve Chair Jerome Powell announced a 0.5% interest rate increase on Wednesday, the steepest hike since 2000.

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The Federal Reserve approved an interest rate increase of a half percentage point on Wednesday in hopes of taming runaway inflation, its most aggressive increase in two decades. The central bank said the move, along with plans to decrease its $9 trillion in holdings, will raise the target range for the federal funds rate to between 0.75% and 1%.

Voting members of the Federal Open Market Committee voted unanimously for the increase, the largest hike since May 2000. Typically, the Fed increases interest rates in increments of 0.25%, as it did in March, its first bump since the pandemic started.

Read more: Pressure Mounts on Fed as Inflation Reaches Highest Rate Since 1981

At that time, the Fed indicated that it expected to approve a half-dozen more increases throughout 2022.   

In a statement on Wednesday, the Fed said that though unemployment has declined significantly, inflation has remained elevated, "reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures," as well as the ongoing invasion of Ukraine and COVID lockdowns in China.