The Federal Reserve said on Wednesday it would not shy away in its fight against historically high inflation in the US even if that means a “sustained period” of economic weakness and a slowing jobs market.

In raising the benchmark overnight borrowing rate by 0.75 of a percentage point, taking the range up to 2.25 to 2.5 per cent, the hikes in June and July represent the most stringent consecutive action since the Fed began using the overnight funds rate as the principal tool of monetary policy in the early 1990s.

The central bank has been raising borrowing costs since March to try to ease price inflation. But fears are rising that higher interest rates will tip the US into recession.

In the meantime, confidence among eurozone consumers and businesses fell sharply in July as high inflation and the prospect of a cut in gas supplies from Russia weighed on the sentiment of the citizens of countries that share the euro currency.

The European Commission’s economic sentiment indicator (ESI) for the eurozone plummeted from 103.5 in June to 99 in July, below its long-term average. Among the largest member states, the ESI declined significantly in Spain (-5.0), Germany (-4.9) and Italy (-3.4), while it remained broadly stable in France and the Netherlands.

“It seems clear that final demand is stalling. High inflation and the soaring costs of energy are, of course, major headwinds,” said Peter Vanden Houte chief economist for the eurozone at ING.

Finally, morale among German businesses has fallen as rising prices for goods and fuel darken the country’s growth prospects, according to a survey by the German Ifo institute think tank published on Monday.

The Ifo institute’s business climate index, a closely followed leading indicator for economic activity in Germany, dropped to 88.6 in July, its lowest reading in more than two years and well below the 90.2 forecasted by analysts. June’s reading was marginally revised down to 92.2.

Worries over gas flows are one reason why German business confidence has slumped, with the head of the Ifo saying that Europe’s largest economy is on the cusp of recession.

This report was compiled by Bank of Valletta for general information purposes only.