The Federal Reserve raised its target interest rate by three-quarters of a percentage point on Wednesday to stem a disruptive surge in inflation, and projected a slowing economy and rising unemployment in the months to come.

The rate hike was the biggest announced by the US central bank since 1994, and was delivered after recent data showed little progress in its battle to control a sharp spike in prices.

Soon after the Fed's move, Hong Kong's de-facto central bank bought HK$13.824 billion from the market in New York trading hours to stop the local currency's weakening and breaking its peg to the US dollar. The Hong Kong dollar is pegged to a tight band of between 7.75 and 7.85 versus the US dollar.

The aggregate balance – the key gauge of cash in the banking system – will decrease to HK$280.739 billion on June 17, an HKMA spokeswoman said on Thursday.

US central bank officials flagged a faster path of rate hikes to come as well, more closely aligning monetary policy with a rapid shift this week in financial market views of what it will take to bring price pressures under control.

"Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices and broader price pressures," the central bank's policy-setting Federal Open Market Committee said in a statement at the end of its latest two-day meeting in Washington. "The committee is strongly committed to returning inflation to its 2 percent objective."

The statement continued to cite the Ukraine war and China lockdown policies as sources of additional inflation pressures.

The action raised the short-term federal funds rate to a range of 1.50 percent to 1.75 percent, and Fed officials at the median projected it would increase to 3.4 percent by the end of this year and to 3.8 percent in 2023 - a substantial shift from projections in March that saw the rate rising to 1.9 percent this year. (Reuters)
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Last updated: 2022-06-16 HKT 06:52