London Daily

Focus on the big picture.
Tuesday, Jul 21, 2026

US makes biggest interest rate rise in 22 years

US makes biggest interest rate rise in 22 years

The US central bank has announced its biggest interest rate increase in more than two decades as it toughens its fight against fast rising prices.

The Federal Reserve said it was lifting its benchmark interest rate by half a percentage point, to a range of 0.75% to 1% after a smaller rise in March.

With US inflation at a 40-year high, further hikes are expected.

The push marks the latest effort to contain spiking costs being felt by households around the world.

India's central bank on Wednesday announced a surprise increase to its benchmark rate, while Australia's central bank recently enacted its first interest rate hike in more than a decade.

The Bank of England is also widely expected to raise rates on Thursday, which would be the fourth increase since December.

"Inflation is much too high and we understand the hardship it is causing," Federal Reserve chairman Jerome Powell said in a press conference in Washington on Wednesday.

"We are moving expeditiously to bring it back down."

By raising rates, banks will make it more expensive for people, businesses and governments to borrow.

They expect that to cool demand for goods and services, helping to ease price inflation.

But their actions also risk triggering a sharp economic slowdown, especially as new challenges emerge, such as the war in Ukraine and recent Covid shutdowns in China.

"It's a narrow path they have to walk," said economist Donald Kohn, who previously served on the Fed's rate-setting committee. "It's going to be a very difficult task."


'Behind the curve'


Inflation in the US hit 8.5% in March, the sharpest annual rate since 1981, driven by accelerating costs for food and energy.

That is well above the bank's 2% target and has become a growing political issue for US President Joe Biden.

Federal Reserve chairman Jerome Powell initially predicted inflation would be "transitory"


Many economists say the Fed has been slow to respond to the problem, which has been fuelled by a mix of factors, including Covid-related supply shortages, a shock to energy markets from the war in Ukraine, and in the US, massive government spending - including direct cheques to households - to support the economy after the pandemic hit.

"They are well behind the curve. I think most central banks are," said Thomas Hoenig, senior fellow at George Mason University's Mercatus Center, who spent nearly 40 years at the Fed.

"But if they try to correct that error with another error - that is to shock the economies with very large interest rate increases - I think they'll pay a pretty big price in terms of a probable recession from that."

The rate increase announced on Wednesday was an unanimous decision. It will push what the Fed charges banks to borrow to a range of 0.75% to 1%, with the higher costs rippling out to consumers in the form of more expensive mortgages, credit cards and other loans.

In addition, the bank detailed plans to remove economic support by winding down its balance sheet, which swelled during the pandemic as it purchased assets, including US government debt and mortgage-backed securities, to boost the economy.

Starting in June, the bank said it would reduce its holdings by $47.5bn per month, increasing to $95bn in September.


'I had to buy quickly'
Mia Navarro


Some people, like first-time homebuyer Mia Navarro, are already feeling the effects of the changes. She sped up her hunt for a one-bedroom apartment in Washington, DC, as she started to see higher mortgage costs limit what she could afford.

"When I originally started my search, I definitely had a bigger budget, based off of what the rates were at the time," said the 25-year-old, who this month bought a one-bedroom apartment for $325,000, with a mortgage rate below 5%.

"I immediately decided that I needed to move quickly...and get in there before they hiked too much out of my range and something that I can still afford."

The actions by the bank in charge of the world's largest economy are expected to have widespread repercussions, as many countries and commodity markets rely on the dollar. On Wednesday Gulf states, whose currencies are tied to the dollar, responded to the Fed with interest rate rises of their own.

Mr Powell said further rate hikes were planned. He added that officials agreed that boosting rates by half a percentage point "should be on the table" in the future, but moving more aggressively was not under active consideration.

US stock markets soared following the press conference, which played out largely as investors had expected.

Mr Powell said he was confident the US economy was strong enough to handle the bank's more aggressive stance, pointing to the tight job market, in which openings outnumber available workers by nearly two to one.

But he acknowledged that the supply shocks from the war in Ukraine and Covid lockdowns in China have presented officials with a tough task - and might force them to move more aggressively to curb demand than they would otherwise.

"We can't really affect oil prices or food and commodity prices - things like that," he said.

But, he added, "We have to ensure that inflation expectations remain anchored - that's part of our job too."

"It puts any central bank in a very difficult situation."


Managing soaring inflation is proving a tall order. Central banks around the world are raising interest rates to lower prices.

And the latest aggressive move by the world's most powerful central bank, the US Federal Reserve is one that will reverberate around the globe.

Not only will it raise borrowing costs for Americans on everything from credit cards to mortgages, it will also push up the value of the US dollar. In turn, that will push up commodity prices and make it more expensive for emerging economies that borrow in dollars.

It is also being felt in financial markets, where asset prices were buoyed by the unprecedented levels of stimulus showered on the economy during the pandemic. As that support is removed, you have already seen more turbulence.

But the Fed has little choice. Inflation has consistently burned hotter than expected. The question is, can it successfully tame inflation without a recession.

As economists often like to say: "Expansions don't die of old age".

Comments

Oh ya 4 year ago
The government says that inflation is 8.5 %. You are not going to stop it with a 1%interest rate. In the 80s the federal bumped the mortgage rate to 18 percent and i hope they do it again

Newsletter

Related Articles

0:00
0:00
Close
Miliband Sets Climate and International Law at Centre of UK Diplomacy
US Gasoline Returns to $4 as Renewed Iran Fighting Disrupts Oil Flows
Czech Central Bank Governor Rejects Early Euro Entry and Rate-Cut Pressure
Trump Orders 50% Tariffs on Selected Canadian Imports
Pentagon Discloses Nearly 100 US Troop Injuries During Renewed Iran Fighting
Trump Readies New Tariffs as Temporary Global Levy Nears Expiry
US Judge Pauses Paramount Skydance and Warner Bros Discovery Merger Over Antitrust Concerns
NHS England Faces Growing Retention Pressure Among Younger Midwives
UK Data Centre Expansion Faces Water and Grid Capacity Challenges
UK Defence Shares Rise After John Healey Appointment and Continued Spending Commitments
OECD Urges UK Government to Review Pension Triple Lock to Protect Public Finances
Bank of England Keeps Cautious Approach as Energy Costs Threaten Inflation Progress
County Councils Call for Wider Devolution and Long-Term Social Care Funding Reform
IMF Urges UK Government to Maintain Fiscal Discipline as Growth Forecast Slows
Russian Warship Holds Live-Fire Exercises Near UK Coast as Royal Navy Monitors Activity
Mitie Agrees Three Point One Billion Pound Takeover by OCS in Another Blow to London Listings
JPMorgan Chase Warns Bank Levies Could Hit UK Growth and Drive Capital Away
UK Unemployment Holds at Four Point Nine Percent as Labour Market Shows Resilience
UK Government Borrowing Falls Below Forecasts as Treasury Receives Early Fiscal Boost
John Healey Cuts VAT on Household Electricity Bills After Cancelling National Digital ID Scheme
Andy Burnham Forms New Labour Government With Ten-Year National Renewal Plan
EU Imposes Record €550 Million Digital Services Fine on AliExpress
UK Publishes Updated Consumption-Based Carbon Emissions Data
English Regions Prepare for Expanded Devolution and Infrastructure Powers
Russell Group Backs New Government and Calls for Stronger University-Industry Links
Bank of England Maintains Restrictive Monetary Policy Amid Persistent Inflation
Climate Progress Report Renews Debate Over the UK's Net Zero Strategy
New UK Government Launches Drive to End Rough Sleeping and Expand Social Housing
Prime Minister Andy Burnham Appoints John Healey as Chancellor in Cabinet Reshuffle
OECD Calls for Structural Reforms as UK Economy Faces Slower Growth
International Monetary Fund Expects UK Economic Growth to Slow to One Percent in 2026
Andy Burnham Takes Office as UK Prime Minister and Unveils Decade-Long Reform Agenda
London’s Housing Starts Collapse as Planning and Building Costs Stall Development
Charlie Sheen’s Daughter: "My Dad Didn’t Buy Me a House, My Breasts Bought It"
Vivienne Westwood Casts Cicciolina, 74, in Its New Autumn Campaign
Dejavu: Germany’s Military Expansion Reshapes Europe’s Strategic Balance With France
Naturally Conceived Identical Quadruplets Born in Rare Brisbane Delivery
Tate Brothers Fight British Extradition Bid After Miami Arrests
Burnham Reshapes Britain’s Government Around Living Costs, Devolution and Security
Jingye Demands Full Compensation After Britain illegally Nationalized British Steel
Just Another Liar or a Robin Hood? Andy Burnham Pledges Cost-of-Living Help in First Speech as UK Prime Minister
Morgan Stanley Builds a Wall Street Lead in AI Infrastructure Finance
High Prices Push Coffee Drinkers Toward Whole Beans and Home Brewing
Trump Draws Boos and Podium Scrutiny at Spain’s World Cup Triumph
Brilliant move: Péter Magyar Moves to Nominate Chess Grandmaster Judit Polgár as Hungary’s President
Spain Defeats Argentina in Extra Time to Win Second World Cup
Police Block Cockroach Janta Party’s March to Parliament as Education Protests Intensify
Current AI Seeks to Build an Open Global AI Infrastructure Outside Big Tech Control
Turkey Explores S-400 Transfer to UAE in Bid to Rejoin F-35 Program
Josh Kerr Breaks Twenty-Seven-Year World Mile Record at London Diamond League
×