Fed raises rates by 0.75 point, the largest increase since 1994, to fight inflation

The Federal Reserve raised its benchmark rate by 0.75 percentage point on Wednesday to a range of 1.50 to 1.75 percent. It is the largest single increase since 1994.

Markets had expected a half-point rise until last week, when data showed US consumer price inflation hitting 8.6 percent in May, the highest in about four decades. After that, reports suggested the Fed was preparing a bigger move.

The Fed's projections point to further increases this year. Officials acknowledged that bringing down inflation may slow the economy, and the central bank lowered its growth forecast.

The rise in inflation has several sources, including energy and food prices driven by the war in Ukraine, supply chain disruptions and strong consumer demand supported by pandemic-era stimulus. The impact of higher rates is already visible:

• Mortgage rates have risen sharply, cooling the housing market
• Stocks have fallen, with the S&P 500 in bear market territory
• Crypto assets have dropped, as speculative investments lose appeal when money is no longer cheap

The dollar has strengthened against most currencies, putting pressure on countries that borrow in dollars. The Fed's challenge is to cool inflation without triggering a deep recession, and markets remain split on whether that is achievable.