The Fed raised its key short-term interest rates by three quarters of a percentage point Wednesday – its largest hike since 1994 – to a range of 1.5% to 1.75. It also downgraded its economic forecast.

June 15, 2022

The Federal Reserve is rolling out the heavy artillery in its bid to fight a historic inflation spike that has shown little let-up.

But the aggressive strategy is expected to further slow the economy and increases the risk of recession. It already has triggered a brutal market sell-off.

The Fed raised its key short-term interest rates by three quarters of a percentage point Wednesday – its largest hike since 1994 – to a range of 1.5% to 1.75. It also downgraded its economic forecast.

It also signaled that more big moves may be coming. Fed officials forecast the federal funds rate will end 2022 at a range off 3.25% to 3.5%, according to their median estimate. That suggests officials are tentatively planning another three-quarters point increase in July and a half point rise in September before throttling back to more typical quarter-point increases the rest of the year.

“The (Fed’s policymaking committee) is strongly committed to returning inflation to its 2 percent objective,” the Fed said in a statement after a two-day meeting.

To put the Fed’s abrupt turnabout in perspective, the key rate began 2022 near zero and its half-point increase in March was the largest since 2000. At that time, officials predicted the rate would rise to about 1.9% by December.

The Fed’s hike Wednesday and its new projections are expected to ripple through the economy, sharply pushing up rates for credit cards, home equity lines of credit and mortgages, among other loans. Fixed, 30-year mortgages already have climbed to 5.23% from 3.22% early this year on the expectation of significant Fed moves.

At the same time, Americans, particularly seniors, should reap the benefits of higher bank savings rates after years of piddling returns.

The Fed lifts rates to curb borrowing, cool off an overheated economy and fend off inflation spikes. It lowers them to spur borrowing, economic activity and job growth.