By Nathalie Voit

The Federal Reserve on June 15 hiked its benchmark interest rate by 0.75%, the single largest rate increase in almost twenty years.

The move raised the Fed’s target range for the federal funds rate to 1.50% and 1.75%, with ongoing increases in the policy rate expected.

Chairman of the Fed, Jerome Powell, said a 50- or 75-basis-point increase at the Federal Open Market Committee’s (FOMC) next meeting in July would be likely, although he does not expect rate hikes of this size to be standard.  

Nonetheless, Powell signaled the Fed’s “overarching focus” remains on taming out-of-control inflation.

“Over the coming months, we will be looking for compelling evidence that inflation is moving down, consistent with inflation returning to [its 2 percent objective],” Powell said in his post-meeting press conference on June 15. 

“Inflation has obviously surprised to the upside over the past year, and further surprises could be in store,” he added, referring to Labor Department data that showed consumer prices in May accelerating 8.6% over the past 12 months. 

According to economic projections released by the central bank this week, the committee expects the federal funds rate to hit 3.4% by the end of the year. This is 1.5 percentage points higher than what policymakers projected in March. Committee members also upwardly revised the benchmark rate to 3.8% by the end of 2023, a full percentage point higher than previously suggested in March.  

In terms of whether the Fed’s aggressive monetary policy could risk a downturn, Powell reiterated that FOMC members were “strongly committed” to restoring price stability, even if it comes at a slight cost to the economy or employment.

“We’re not trying to induce a recession now. Let’s be clear about that,” the chairman said. However, Powell acknowledged that the probability of achieving a so-called “soft landing”–a situation in which economic growth halts enough to rein in inflation but not so much as to spark a recession–was becoming increasingly unlikely.

Powell explained that the environment has become more “challenging” due to factors outside of the Fed’s control, referencing international events like the war in Ukraine and pandemic-related lockdowns in China.

“What Powell and the rest of the FOMC are saying is that restoring price stability is the primary focus — if they risk a mild recession, or a bumpy, soft landing, that would still be successful,” Chief U.S. Economist at Oxford Economics Kathy Bostjancic stated, according to The New York Times. “The focus is greatly on inflation right now.”