As a result, the bank of England is under pressure to follow suit by pounding harder into rising prices in an effort to contain inflation. The United States central bank has maintained the rapid rise in interest rates and pledged to raise borrowing costs even further, despite warnings of a slowdown in the US economy.
The key interest rate was raised to the collective highest level since the financial crisis.
There have not been such dramatic rate hikes since the 1980s in a move that could force other central banks to follow suit.
Fed chairman Jerome Powell has hinted that further hikes are on the way, although there could be a short-term slowdown after dramatic efforts to cool demand.
In turn, the Bank of England is coming under increasing pressure from Conservative MPs to tackle inflation as the party seeks to elect its new leader and prime minister.
The Bank is considering a 0.5 percentage point hike on what would be the largest rate hike in nearly 30 years.
Liz Truss, frontrunner of the Conservative leadership, has called for a review of the bank’s mandate, while her rival Rishi Sunak has argued that the Secretary of State’s proposed tax cuts would exacerbate inflation.
Mr. Powell’s move raises the Fed Funds Rate’s target range to 2.25 percent to 2.5 percent, with markets forecasting it to rise above 3 percent by the end of the year.
US stock markets rocketed after Mr Powell indicated that the pace of rate hikes will slow after the rapid increases.
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Hopes of an economic “soft landing” are fading as many Wall Street forecasters predict a recession.
Mr Powell said that while the US is not currently in a recession, there are growing signs of an economic slowdown.
He said there was growing evidence of lower spending and industrial production, though he also highlighted the strong job market.
He said: “I don’t think the US is currently in a recession and the reason is that there are just too many parts of the economy that are doing too well and of course I would like to point out the labor market in particular.”
Kiran Ganesh of UBS Global Wealth Management said: “The Fed is trying to go through the eye of a needle and underline its credibility in fighting inflation while also remaining aware of the risk of tightening.”