Interest Rates Raised 0.75 Percentage Point

The Federal Reserve approved the largest interest rate increase since 1994 and signaled it would continue lifting rates this year at the most rapid pace in decades as it races to slow the economy and combat inflation that is running at a 40-year high.

Officials agreed to a 0.75-percentage-point rate rise at their two-day policy meeting that concluded Wednesday, which will increase the Fed’s benchmark federal-funds rate to a range between 1.5% and 1.75%.

The rate increase departed from unusually precise guidance delivered by many members of the rate-setting Federal Open Market Committee in recent weeks indicating they would raise rates by a smaller half percentage point, as officials did at their meeting last month. The committee vote was 10-1, with Kansas City Fed President Esther George dissenting in favor of a half-percentage-point increase.

New projections showed all 18 officials who participated in the meeting expect the Fed to raise rates to at least 3% this year. The median projection would lift the fed-funds rate to around 3.375%, or by an additional 1.75 percentage point over the following four meetings this year. Most officials had projected in March that they would raise rates to at least 1.875% this year.

The projections showed officials see the rate rising to around 3.75% by the end of 2023, up from the 2.75% rate that officials had penciled in during similar projections in March. Officials project reducing rates slightly in 2024.

Such a pace of increases would represent the most aggressive rate-rise cycle since the 1980s. The central bank has also initiated a program to withdraw stimulus by shrinking its $8.9 trillion asset portfolio through attrition; the Fed is passively reducing its holdings as those securities mature.

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