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US Federal Reserve raises interest rates by 50 basis points

Reference interest rates in the US are between 0.75% and 1%

The US central bank announced this Wednesday an increase in its interest rates by 50 basis points, the first such increase since 2000, to try to control inflation.

In the statement released after a two-day meeting, the Federal Reserve (Fed) indicated that further increases are warranted in the future.

Reference interest rates in the United States are now between 0.75% and 1%, the statement said.

The Fed also indicated that it will start to reduce its balance sheet from June 1st, another measure of tightening US monetary policy to stop the escalation of inflation.

The central bank has warned that the war in Ukraine and the lockdowns in China will exacerbate inflation and logistical problems.

The rate hike was unanimously voted on by the monetary policy committee.

Fed officials continue to believe that inflation will progressively approach the central bank’s 2% target as borrowing costs rise, but insist it will “keep a particular eye on inflation.”

Inflation in March reached 8.5%, the highest level since December, according to the Consumer Price Index (CPI) released by the Labor Department.

The committee underlined the “very uncertain” impact of external factors, such as Russia’s invasion of Ukraine, which “creates additional pressure for inflation, with the risk of affecting economic activity”.

In addition, the lockdowns in China to curb Covid-19 cases “are likely to exacerbate disruptions in the supply chain”, says the statement from the monetary policy committee.

The central bank, which has accumulated assets worth around US$9 billion with the purchase of Treasury bonds and other securities, also indicated that it will begin to reduce its balance sheet at the rate of US$47.5 billion per month from from early June, accelerating to 90 billion after three months.

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