To fight inflation, the US Federal Reserve (Fed) is raising its key interest rate again by 0.25 percentage points. It is now in the range of 5.25 to 5.50 percent, like the Fed announces.This is the highest level in 22 years.
The eleventh increase within 16 months had been widely expected. The exciting question now is how to proceed. In June, the Fed took a pause after ten hikes in a row. At the time, it signaled at least two more hikes this year. Now the Fed is pointing out that inflation is still high – and that at the same time the development on the labor market is robust.
According to media reports, there are different views among the members of the US Federal Reserve Board. Some are in favor of going ahead with rate hikes. The other faction wants to stop the hikes to protect the job market, the financial service Bloomberg wrote.
fight against inflation
In the fight against the high rise in consumer prices, the Fed has steadily raised the base rate since March 2022, sometimes in increments of 0.75 percentage points. The cycle is considered one of the fastest and sharpest tightening periods in Fed history. The rapid inflation was triggered, among other things, by the rise in energy prices after the Russian attack on Ukraine.
Keeping inflation in check is the traditional task of central banks. If interest rates rise, private individuals and businesses have to spend more on loans – or borrow less money. Growth is slowing, companies cannot pass on higher prices indefinitely – and ideally the inflation rate is falling. At the same time, however, there is a risk that the economy will stall. Finding the right balance is the big challenge for central bankers.
June data showed that high inflation in the US had eased again and noticeably. Consumer prices rose by 3.0 percent compared to the same month last year. That was the lowest level in a little over two years. In the previous month, the rate was 4.0 percent. Core inflation also fell significantly in June from 5.3 to 4.8 percent. This rate excludes volatile energy and food prices.