Federal Reserve System Cnbc

Federal Reserve Raises Interest Rates by 0.5%, and Signals More Hikes to Come

Fed Chair Powell Warns of 'Pain' for Households and Businesses

Central Bank Raises Key Interest Rate for Second Time Since March, and Signals More Tightening Ahead

The Federal Reserve on Wednesday raised its benchmark interest rate by half a percentage point and signaled that it will continue to aggressively tighten monetary policy in an effort to tame inflation, even if it causes economic pain.

The central bank's decision, which was widely expected, marks the second time it has raised rates since March, and brings the target range for the federal funds rate to 0.75% to 1%. The Fed also indicated that it will continue to raise rates at a rapid pace in the coming months, with some policymakers projecting that the federal funds rate could reach 2.75% by the end of the year.

In a press conference following the announcement, Fed Chair Jerome Powell said that the central bank is "strongly committed" to bringing inflation back to its 2% target, even if it means causing "some pain" for households and businesses in the short term.

"We understand that higher interest rates will slow economic growth," Powell said. "But we believe that getting inflation under control is essential for achieving sustainable economic growth over the longer term."

The Fed's aggressive monetary tightening comes as inflation has surged to its highest level in four decades. The consumer price index, which measures the cost of a basket of goods and services, rose 8.5% in March, the largest annual increase since 1981.

The Fed's rate hikes are intended to slow economic growth and reduce demand, which should eventually lead to lower inflation. However, the central bank's actions could also lead to job losses and a recession.

Powell acknowledged the risks of a recession, but said that the Fed is "not trying to induce a recession." He said that the central bank is "committed to using our tools to bring inflation back to our 2% target, while also supporting a strong labor market."