US rate hike a bid to slow rapid inflationary rise

Wall Street's closed cautiously optimistic despite one of the largest interest rate hikes from the Federal Reserve threatening to tip America's economy into a recession.

The 0.75% increase in the short term rate is the Government's attempt to turn the tide on the United State's rapid inflationary rise - which hit 8.6% last month.

Consumer goods, food prices and gas are hitting record highs - accompanied by cheap borrowing and low unemployment.

"The current picture is plain to see," said Federal Reserve chairman Jerome Powell.

"The labour market is extremely tight, and inflation is much too high."

The Fed has already raised the interest rate - but economists say the upswing now has come too little, too late - and the country now risks tanking into a recession.

"It's going to be a long journey. We need to see interest rates go up quite a bit and we need to see inflation come way down," said analyst Greg McBride.

Powell is hoping the hike, a blunt tool that rarely avoids recession, can this time offer a 'soft landing' - that spending will soften, consumers will see their money go further but won't notice mass lay-offs or the inevitable rise in mortgage and credit card interest rates.

That's unlikely - mortgage rates have already doubled in the last quarter, to around six percent.

"The reality of it is with inflation at a 40 year high and interest rates that are at record lows, a recession may be the price we have to pay to get inflation under control," said McBride.

The threat of a long-term economic spiral isn't just restricted to the United States.

As a super-power, and global economy stabiliser, a recession would flow through to other world economies as well.

America contributes 15% of global gross domestic product, and around half of all stock market capitalisation.

US Treasurer Janet Yellen says the issue of inflation is not limited to the US.

"We're not the only country that's experiencing inflation. You can see that in virtually every developed country around the world."

US stock markets continued their bumpy trajectory today - there were no dramatic shifts after the Fed's announcement.

World markets followed a similar path, but many are expecting things to get worse in the next nine months.

"We were expecting a slowdown. That slowdown is much more pronounced now," said Ayhan Kose of the World Bank.