The Federal Reserve on Wednesday approved its largest interest rate increase in more than a quarter of a century.
The widely expected move raised the target federal funds rate to a range of between 1.5% and 1.75%.
The Fed’s hawkish commitment to controlling inflation has already touched off a broad tightening of credit conditions being felt in U.S. housing and stock markets.
Consumer inflation expectations jumped sharply in June, a result Fed chair Jerome Powell called “quite eye-catching,” and enough to tilt policymakers toward a larger 75-basis-point hike.
The faster pace of rate hikes outlined by officials on Wednesday more closely aligns monetary policy with the rapid shift in financial market views of what it will take to bring price pressures under control.
Inflation has become the most pressing economic issue for the Fed, with household sentiment worsening amid rising food and gasoline prices.
The Fed is willing to let the unemployment rate rise and risk a recession as collateral damage to get inflation back down.
This isn’t a Volcker moment for Powell given the magnitude of the hike, but he is like a Mini-Me version of Volcker with this move, analyst says.
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