The US central bank raised interest rates by 0.75% to fight inflation – the biggest rise in 28 years.
The Federal Reserve announced more rate hikes to come and predicted a slowing economy in the coming months, as well as rising unemployment.
The bank raised its benchmark rate to a range of 1.5% to 1.75%, which had not been seen since the start of the pandemic.
This increase will make borrowing more expensive for individuals, businesses and governments, which will affect consumer products like credit cards and mortgages.
Fed Chairman Jerome Powell had previously ruled out such a large increase, but last month’s unexpected spike in inflation – which many hoped had peaked – forced the bank to change course.
Data released on Friday showed US inflation hit a 40-year high of 8.6% in May, one of the highest in the world.
In a statement, the Federal Open Market Committee cited the impact of war in Ukraine and lockdown policies in China on soaring consumer prices.
Officials have raised their interest rate forecasts at the end of this year and next year, expecting the median benchmark rate to reach 3.4% by the end of 2022.
In March, this rate was projected at 1.9%.
It is expected to reach 3.8% by the end of 2023, up from the March forecast of 2.8%.
The revision indicates that Fed officials expect inflation to last longer than before.
Mr Powell said he does not expect increases of 75 percentage points to be common.
US inflation figures prompted a sharp sell-off in bonds and stocks by investors who were anticipating Wednesday’s interest rate hike.
The S&P 500 entered bearish territory on Monday, after falling 20% from its January peak.
Other countries are also raising interest rates to fight inflation.
In the UK, the Bank of England is expected to raise its rate by 0.25% to 1.25% on Thursday.
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