Money US economy
US Federal Reserve leaves key interest rate unchanged once again
Status: 31.01.2024 | Reading time: 3 minutes
Jerome Powell, Chairman of the US Federal Reserve, speaks during a press conference (archive image)
Quelle: picture alliance/dpa/AP/Susan Walsh
You can listen to our WELT podcasts here
In order to display embedded content, your revocable consent to the transmission and processing of personal data is necessary, as the providers of the embedded content require this consent as third party providers [In diesem Zusammenhang können auch Nutzungsprofile (u.a. auf Basis von Cookie-IDs) gebildet und angereichert werden, auch außerhalb des EWR]. By setting the switch to “on”, you agree to this (revocable at any time). This also includes your consent to the transfer of certain personal data to third countries, including the USA, in accordance with Art. 49 (1) (a) GDPR. You can find more information about this. You can revoke your consent at any time using the switch and privacy at the bottom of the page.
In December, the US Federal Reserve announced an interest rate cut for 2024. But the US key interest rate still remains at the high level of 5.25 to 5.5 percent. One must first gain more confidence that inflation is moving sustainably towards two percent.
The US Federal Reserve (Fed) is leaving its key interest rate unchanged at a high level for the fourth time in a row. It remains in the range of 5.25 to 5.5 percent, as the Central Bank Council announced on Wednesday in Washington. Commercial banks can borrow central bank money at this rate. The decision was expected.
It is the highest value in more than two decades. The Fed made it clear that it was not yet ready to cut interest rates. One must first gain more confidence that inflation is moving sustainably towards two percent, said the statement from the US Federal Reserve.
Since March 2022, the Fed has raised its key interest rate by more than five percentage points at a record-breaking pace in the fight against inflation – but has recently stopped adjusting the interest rate screw. The rapid inflation was triggered, among other things, by the rise in energy prices after the Russian attack on Ukraine.
also read
With inflation easing, it is expected that the US Federal Reserve could cut interest rates soon. In December the annual rate was 3.4 percent. The US Federal Reserve is aiming for price stability of 2 percent in the medium term. Keeping inflation under control is the classic task of central banks.
Robust US economy
Central banks are turning interest rates in the fight against high consumer prices. 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 of a recession. Finding the right balance is the big challenge for central bankers.
also read
Advertorial Simply invest
The Fed’s rapid interest rate hikes had dampened growth in the largest economy. Last fall, however, the US economy grew more strongly than expected. In the fourth quarter, the gross domestic product increased by 3.3 percent on an annual basis compared to the previous quarter, as the US government announced about a week ago. Experts had expected an average of two percent. Economists were positively surprised. The prospects of avoiding a recession have improved. Given the robust economic growth, the Fed is unlikely to be in any hurry to cut interest rates.
Fed Chairman Powell urges caution
Observers do not expect a rate cut until after the next meeting in March at the earliest. So far it appears that the Fed has managed to slow down price increases without completely slowing down the economy. In December, Fed decision-makers expected an average key interest rate of 4.6 percent for this year. That suggests about three rate cuts in 2024. Experts assume that there could be more. But good economic data is reducing the pressure on the Fed to significantly reduce interest rates quickly.
also read
Because Fed Chairman Jerome Powell repeatedly urges caution. Declining inflation now gives the monetary authorities in the USA some leeway. But Powell has repeatedly emphasized in the past that the data should be viewed with caution and that we will have to wait and see whether the decline is permanent. He fears that if interest rates are cut too quickly, inflation could skyrocket again. Because greater purchasing power could trigger a surge in inflation. This would likely result in rapidly rising consumer prices.
Unlike in the euro area, inflation in the USA is primarily driven by high demand and a strong labor market. A strong labor market generally makes it harder for the Fed to fight inflation because it drives up wages.
Here you will find content from third parties
In order to display embedded content, your revocable consent to the transmission and processing of personal data is necessary, as the providers of the embedded content require this consent as third party providers [In diesem Zusammenhang können auch Nutzungsprofile (u.a. auf Basis von Cookie-IDs) gebildet und angereichert werden, auch außerhalb des EWR]. By setting the switch to “on”, you agree to this (revocable at any time). This also includes your consent to the transfer of certain personal data to third countries, including the USA, in accordance with Art. 49 (1) (a) GDPR. You can find more information about this. You can revoke your consent at any time using the switch and privacy at the bottom of the page.