The U.S. central bank did what it was expected to do on Wednesday, raising its benchmark lending rate by three quarters of a percentage point as it steps up its battle to rein in runaway inflation.
The Federal Reserve raised the upper bound of its benchmark rate — known as the federal funds rate — to 2.5 per cent.
That matches the Bank of Canada’s rate, after Canada’s central bank raised by a full percentage point earlier this month.
After slashing interest rates in the early days of the pandemic, central banks around the world have recently begun to aggressively raise lending rates to deal with inflation that has risen to its highest point in decades.
The official U.S. inflation rate topped nine per cent last month, while it’s currently more than eight per cent in Canada.
The U.S. federal funds rate is now at the highest point it hit during the previous economic cycle, Desjardins economist Royce Mendes said, adding that the central bank’s decision makes it clear the fight against inflation is the Fed’s top priority, even as signs mount that it may have already peaked and a recession may be looming.
“This still looks like a central bank that is very focused on fighting inflation even in the face of a weakening in the underlying economy,” Mendes said.
Federal Reserve chair Jerome Powell will have more to say about the bank’s line of thinking at a press conference on Wednesday afternoon.