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American Federal Reserve Interest Rate Hikes by Another 75bps

The Federal Reserve raised the target range for the federal funds rate by 75bps to 3.75%-4% during its November 2022 meeting.

It marks a sixth consecutive rate hike and the fourth straight three-quarter point increase, pushing borrowing costs to a new high since 2008. The decision came in line with market forecasts.

Policymakers also said that ongoing increases in the target range will be appropriate and that they will take into account the cumulative tightening of monetary policy.

The lags with which monetary policy affects economic activity and inflation, and economic and financial developments, when deciding on the size of further increases.

The message could signal a smaller rate hike in December but during the press conference Fed Chair Powell said the ultimate level of interest rates will be higher than previously expected.

The Federal Reserve rate  aims to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2%, which remains elevated around 40-year highs.

Earlier the US stocks dropped into a bear market this year on expectations the Fed would be aggressive in jacking up interest rates to bring down high inflation through slowing economic activity. The Nasdaq Composite, home to large-cap technology stocks, has plunged 26% this year. The S&P 500 has declined 18%. Both indexes were off their lows of the year.

The Treasury market has also sunk into a bear market this year, with yields soaring while bond prices decline. The Fed-policy sensitive 2-year Treasury note yield on Tuesday reached 3.97%, a fresh 15-year high. The 10-year Treasury yield rose to 3.56%, a fresh 11-year high. The yield curve inversion is widely considered a warning of economic recession.