The US central bank has increased interest rates by 0.75% to combat inflation – the sharpest hike in 28 years.

The Federal Reserve signalled more rate rises to come and projected a slowing economy in the months ahead, along with rising unemployment.

The bank raised its benchmark rate to a range of 1.5% to 1.75%, which has not been seen since before the pandemic began.

The increase will make it costlier for people, businesses and governments to borrow, affecting consumer products like credit cards and mortgages.

The Fed’s chairman, Jerome Powell, had previously ruled out such a high increase but the unexpected spike in inflation last month – which many had hoped had peaked – forced the bank to change course.

Data published 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 the war in Ukraine and lockdown policies in China on soaring consumer prices.

The $1trn shock for US tech stocks as markets brace for more toxic times ahead

When will economy improve? What might this mean for house prices? Your questions answered as interest rate hiked

Interest rate raised to 1% by Bank of England despite issuing warning of recession

Officials raised their forecasts for interest rates at the end of this year and next, expecting the median benchmark rate to hit 3.4% by the end of 2022.

In March, that rate had been 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 they had before.

Mr Powell said he does not expect hikes of 75 percentage points to be common.

US inflation figures have prompted a sharp sell-off in bonds and stocks by investors who anticipated Wednesday’s interest rate rise.

The S&P 500 entered bear market territory on Monday, having fallen 20% from its peak in January.

Other countries are also raising interest rates to combat inflation.

In the UK, the Bank of England is expected to increase its rate by 0.25% to 1.25% on Thursday.

Related posts:

Ex-Post Office chief quits retailer boardroom roles after sub-postmasters have convictions overturned Good news for famous food company and how COVID boosted business for pet shop giant Nike says it dropped Neymar after he refused to cooperate in sexual assault probe Staycation frenzy goes on as Park Holidays owners mull sale Rolls-Royce clinches £1.5bn sale of ITP Aero division Calls for key workers to be prioritised for fuel – but who should be front of the queue? ‘Christmas became a little more expensive’: Shop price inflation highest since March 2019 Food start-up Sessions toasts Guinness backing in £7.5m fundraising Iceland has 11% of staff isolating as retail warns Omicron rules threaten disruption China faces ‘difficult set of choices’ as it seeks to prevent its companies being delisted in the US Beauty Bay hires bankers to review options after IPO stalls Cost of living crisis, remote working roles and tackling scam reviews