US Federal Reserve raises benchmark interest rate

Policymakers at the US Federal Reserve have spent months trying to overcome concerns about inflation. However, prices have risen beyond even their own expectations. Now, they are moving aggressively to bring them down. They decided to raise the benchmark interest rate by three-quarters of a percentage point. It is the sharpest rate hike in nearly three decades.

Federal Reserve Chair Jerome Powell made the announcement in Washington on Wednesday.

Powell said the Fed is strongly committed to bringing inflation back down and is moving expeditiously to do so.

Powell said policymakers were "surprised" by what he called the "unusual circumstances" of inflation reaching 8.6 percent. They agreed they could make similar rate increases going forward.

Policymakers had feared Americans sheltering at home during the pandemic would cut the bottom out of consumption. So, two years ago, they lowered their benchmark interest rate close to zero. And they, along with government leaders, injected the economy with billions of dollars in stimulus.

Many consumers saved more than usual and have had more to spend. However, a lack of workers disrupted the supply chain, leading to a rise in prices. Coronavirus lockdowns in China added further kinks in the supply chain; Russia's invasion of Ukraine put more pressure on prices of food and energy.

Higher interest rates will raise the costs of borrowing for consumers and businesses. Fed officials are hoping that higher rates will cool down the economy and bring prices under control.