The U.S. Federal Reserve raised its benchmark interest rate by three-quarters of a percentage point in its latest move to get ahead of runaway inflation.
The decision by the central bank was in line with what economists were expecting, although there was some thought that the Fed might hike by even more — a full percentage point.
Instead the Fed raised its trendsetting rate by 75 basis points for the third time in a row. The Fed's rate is now at its highest point since 2008, and policy-makers are signalling they aren't done yet: officials forecasted that they will boost their benchmark rate to roughly 4.4 per cent by year's end, a full percentage point higher than they had forecast in June.
That aggressive path for rates speaks to just how big a problem policy-makers think inflation is. Inflation rates have roared to multi-decade highs around the world in recent years, prompting a range of actions by central banks to get it under control.
All things being equal, central banks raise their rates when they want to cool down an overheated economy, and they cut their rates when they want to stimulate borrowing to grow the economy.
At a news conference following the decision, Fed chair Jerome Powell made it clear that the U.S. central bank is not afraid to keep rates where they are, or go higher, for as long as it takes to rein in inflation.
They "want to be very confident that inflation is moving back down," before contemplating cutting rates again, he said.
Interest rates in the U.S. and Canada now sit at 3.25% after the latest Fed hike
Barry Schwartz, chief investment officer at the Toronto-based Baskin Wealth Management, says it's going to be hard for the Fed to do its job of bringing down inflation without causing pain in the broader economy.
"The big danger is that the Fed will overshoot … by raising interest rates too fast, too high, leading to a worsening economy," he told CBC News in an interview on Wednesday.
The Fed's move will make it costlier to take out a mortgage or other forms of loans — and will no doubt cool consumer spending in the process. The average 30-year mortgage rate in the U.S. topped 6.4 per cent last week, its highest level in 14 years.