US Federal Reserve increased interest rates by 0.75 percent, why had to make the biggest increase in 28 years?

US Federal Reserve New Interest Rate: At present, the inflation rate in America is increasing at the highest rate in 40 years. In the month of May, the inflation rate in the US was recorded at 8.6 percent. The Fed Reserve is taking the decision to increase the key interest rates only to check inflation.

Highlights

• US central bank Federal Reserve increased its interest rates
• Federal Reserve hikes interest rates by 0.75 percent
• Inflation peaks in America, biggest jump in interest rates in 28 years

Washington: The US Federal Reserve has announced an increase in interest rates by 0.75 percent. This is the biggest increase in 28 years. Inflation in the US is at its highest level in 40 years. It was recorded at 8.6 per cent in the month of May. In such a situation, the Central Bank of America has taken this step to control inflation. The increase in interest rates by 0.75 per cent is the highest since 1994. Due to the increase in the interest rates of the US Fed, the clouds of crisis are hovering over the Indian currency.

The decline seen in the stock markets even before the announcement

Traders had distanced themselves from the market ahead of the results of the meeting of the US central bank Federal Reserve. There is a saying in the business world that even if America sneezes, the world catches a cold. Ahead of the US Fed meeting, the stock markets around the world had seen a fall due to the forecast of a hike in interest rates. When interest rates remain low in the US, there is a huge flow of money into emerging markets in the form of FPI investments. This strengthens the stock markets.

What will be the effect on India?

When the prime interest rate rises in America, countries around the world start increasing their prime interest rates as well. In India too, the RBI started increasing the repo rate when there was a strong expectation of a hike in interest rates by the US. In fact, what happens is that as interest rates rise in the US, the gap between US and Indian government bonds narrows. Due to this gap, global investors start withdrawing money from Indian securities.

Why is the US bank raising interest rates?

Inflation in the US is currently rising at the highest rate in 40 years. In the month of May, the inflation rate in the US was recorded at 8.6 percent. The Fed Reserve is taking the decision to increase the key interest rates only to check inflation. Loans become costlier as interest rates rise. This reduces people's spending. In such a situation, the demand decreases and the prices of the goods start falling. On the other hand, if the US Fed raises interest rates to curb inflation, the dollar strengthens.