The Fed raises rates for the first time since 2018

The U.S. Federal Reserve raised short-term interest rates for the first time since 2018, marking the end of the Fed’s pandemic-era easy-money regime as the central bank moves to battle historically high levels of inflation.

The Federal Open Market Committee on Wednesday raised the Fed’s benchmark Federal Funds Rate by 0.25% to a target range of between 0.25% and 0.50% -- kicking off a process of raising borrowing costs in the hopes of dampening demand that may be driving rising prices, CNN reported.

The FOMC also signaled that the Fed was likely to raise rates up to six more times in 2022, meaning Americans can expect rates to be 1.75% higher at the end of the year compared to 2021.

Although the FOMC signaled in December that rates would only rise three times in 2022, a more aggressive monetary policy regime will apparently be pursued in order to bring inflation down to its 2% target.

Central bankers, however, have warned that inflation will not immediately respond to the rate hikes and say Americans should expect prices to rise by 4.3% over the course of the year – well above the 2.6% pace it projected in December. There is hope that the rate could fall to 2.7% by 2023 and 2.3% in 2024.

“Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures,” the FOMC statement says.

The median member of the FOMC projects a likelihood that the Fed will have the short-term interest rate between 2.5% to 3% by the end of 2024.