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Fed raises interest rates by 75 basis points, biggest hike since 1994

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Yahoo Finance's Brian Cheung breaks the news surround the Fed's 75 basis point rate hike and its goals for taming rising inflation.

Video Transcript

SEANA SMITH: Brian Cheung has the Fed decision for us. Brian?

BRIAN CHEUNG: Well, Seana, it is official. The Federal Reserve has raised interest rates by 3/4 of a percent. That's 0.75% or 75 basis points. The Federal Reserve noting in its statement, which was released just now, quote, "overall economic activity appears to have picked up after edging down in the first quarter." They continued to describe job gains as robust in recent months and said the unemployment rate has remained low.

Beyond that, not much changed in the Fed's statement itself. It's interesting to see that the Fed continued to describe inflation the same way it had described it in May, saying that it remains elevated, reflecting supply-demand imbalances related to the pandemic, higher energy prices, and broader price pressures. But all that you need to know is in the Fed's economic projections, which they release on a quarterly basis.

The Federal Reserve noting that the reason for why it needed to hike more aggressively in this meeting is because of a higher-than-expected inflation path for this year. The Fed had in March projected PCE headline inflation at 4.3%. They said it's going to clock in at 5.2% by the end of 2022. That's a big reason why the Fed needed to go bigger today. They also downgraded their expectations for growth in the United States this year, projecting 1.7% GDP growth compared to 2.8%, a notable downgrade on that front.

For that reason, the Fed expecting to raise rates further. They expect to get the Fed funds rate to somewhere around 3.4% by the end of this year, you guys. That would imply another roughly 175 basis points throughout the next four meetings remaining this year. The Federal Reserve going big and going more aggressive with that announcement today. We'll see what the Fed chairman has to say at his press conference at about 2:30, guys.

- Indeed, quite the turnaround from taking 75 basis points off the table to now that seems like the Fed is off and running. But we do know that this wasn't a unanimous decision. What do we know about the dissent?

BRIAN CHEUNG: Actually, Rochelle, it was not a unanimous decision. Interesting to note that there was one policymaker who dissented against the decision. That is Kansas City Fed President Esther George, who interestingly, preferred to do a half-percentage-point rate hike instead of a 75-basis-point hike.

This might be a surprise to Fed watchers, who historically, have seen Esther George as someone who's a little bit more of a hawk. Perhaps they expected that if there was going to be a dissent, maybe it'd be 100 basis points. But again, she preferred a half-percentage-point increase in this meeting. We'll have to see if she has any commentary to add on that front. But outside of that, all the other members of the voting members apart of this committee did agree to that 0.75% increase.

- OK, Brian Cheung, look forward to hearing from you after we hear from Jerome Powell.