The US Federal Reserve today fired a rate hike bazooka as it scrambles to tame the worst bout of inflation across the pond in recent history.
Chair Jerome Powell and co lifted the world’s most important interest rate 75 basis points, the steepest rise since 1994, to between 1.5 and 1.75 per cent.
The move marks an acceleration of the Fed’s drive to remove ultra-stimulative monetary policy that has propped up the US economy since the financial crisis and through the pandemic.
The central bank also signalled that further rate rises “will be appropriate” in the coming months.
Wall Street bounced on the news, with the S&P 500, seen as a barometer of corporate America, jumping 0.82 per cent.
The tech-heavy Nasdaq, which is heavily exposed to tighter financial conditions, climbed 1.64 per cent. The Dow Jones added 0.44 per cent.
The steep rate rise comes as the City braces for the Bank of England to lift borrowing costs tomorrow by at least 25 basis points from an already 13-year high to 1.25 per cent. They would still be low by historical standards.
Some investors are pricing in Andrew Bailey and the rest of the rate setting committee to waive through a sharper 50 basis point rise, something the Bank has not done since it was made independent 25 years ago.
Bank chief between 2013 and 2020 Mark Carney, 57, today told Bloomberg that monetary authorities must “front-load” tightening if they want to have any impact on rapid price rises.
The world’s foremost monetary authorities are in the process of switching off accommodative policy – which has involved keeping rates at rock-bottom levels and flooding economies with money – to tackle historic living cost rises.
Last Friday’s higher than expected 8.6 per cent US inflation figure, a four decade high, is being seen by Wall Street as triggering the steeper move by the Fed.
Analysts at Capital Economics think today’s decision is the start of a series of sharp rate hikes which will eventually leave US borrowing costs around four per cent next year.
Meanwhile, in Britain, the cost of living has scaled to nine per cent, also a four decade high, which will prompt Threadneedle Street to waive through a fifth rate rise in a row tomorrow, markets expect.