THE U.S. Federal Reserve on Wednesday raised its benchmark interest rate for the first time since 2018 as it seeks to tame the highest U.S. inflation in four decades.

“Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures,” the Fed said in a statement after a two-day policy meeting, adding the Ukraine crisis and related events are likely to “create additional upward pressure” on inflation and weigh on economic activity.

The central bank decided to raise the target range for the federal funds rate by a quarter percentage point to 0.25 to 0.50 percent and “anticipates that ongoing increases in the target range will be appropriate,” the statement said.

In addition, the central bank expects to begin reducing its holdings of U.S. Treasury securities and agency debt and agency mortgage-backed securities “at a coming meeting”, according to the statement.

The target range for the federal funds rate was previously set near zero in March 2020 to stimulate the U.S. economy at the start of the COVID-19 pandemic.

The central bank also embarked on an unlimited bond-buying program to prop up markets and reduce long-term borrowing costs. Now the Fed’s balance sheet has swelled to nearly 9 trillion U.S. dollars from around 4.5 trillion dollars two years ago.

With U.S. inflation hitting a 40-year high and well above the central bank’s target of 2 percent, many Fed officials have expressed in recent months that they would support a plan to begin a series of rate increases and the balance sheet unwind this year in a bid to cool off the overheating economy.

The consumer price index (CPI) last month surged 7.9 percent from a year earlier, the largest 12-month growth since the period ending January 1982, according to the U.S. Labor Department.

The Federal Open Market Committee (FOMC), the Fed’s policy-making committee, on Wednesday approved the rate increase by an 8-to-1 vote, with St. Louis Federal Reserve Bank President James Bullard dissenting in favor of a larger half-percentage-point increase.

The Fed’s quarterly economic projections released Wednesday showed that most Fed officials expect the federal funds rate to rise to 1.9 percent by the end of this year and around 2.8 percent by the end of 2023. That implies a total of seven quarter-percentage-point rate hikes this year and another three or four next year.

(Xinhua)