The Federal Reserve is finally getting tough on inflation, after consumer prices surged for more than a year and the central bank was accused of dragging its feet.

At the end of its May meeting on Wednesday, the Fed raised benchmark interest rates by half of a percentage point, taking the target rate to 0.75 percent to 1 percent, in its biggest single rate increase since May 2000.

The central bank said it will also begin the process of reducing its $9 trillion balance sheet, which ballooned during the pandemic as the Fed gobbled up bonds to pump money into the economy.

Reducing the Fed's balance sheet holdings will have the effect of further raising loan costs throughout the economy, as will the higher benchmark rate -- but the Fed hopes the moves will counteract inflation, which hit 8.5 percent in March. 

Following the announcement of the rate hike, Fed Chair Jerome Powell opened a press conference with an unusual direct address to the American people, saying: 'Inflation is much too high, and we understand the hardship it is causing, and we are moving expeditiously to bring it back down.'

'We have both the tools we need and the resolve it will take to restore price stability on behalf of American families and businesses,' he added.

The moves announced Wednesday were widely expected, and the major stock indexes increased slightly after the announcement. At 2.10pm, the Dow was up 150 points on the day.