Federal Reserve Chairman Jerome Powell is fighting inflation
Which: REUTERS
The US Federal Reserve has raised interest rates again – to a range of 5.0 to 5.25 percent. It is the highest value in 16 years. However, further rate hikes could be over for the time being.
Dhe US Federal Reserve continues the series of interest rate hikes in the fight against inflation. As expected by many investors, it raised interest rates by 0.25 percentage points to the new range of 5.0 to 5.25 percent on Wednesday.
This is the highest value since 2007 – i.e. before the start of the global financial crisis. The most recent bank collapse in the USA – the collapse of the First Republic Bank – has not stopped the Fed from further tightening interest rates slightly. Now, however, an interest rate pause could follow.
The currency guardians deleted a passage from theirs communication, after which some additional monetary tightening may be warranted. Instead, a wording was chosen that leaves the door open for a possible tightening, but gives no signal for it.
At the beginning of 2022, the key interest rate was still close to zero. Then the central bankers took up the fight against inflation in several drastic steps with increases of 0.75 percentage points. The decision on Wednesday evening is the tenth rate hike in a row.
Recently, however, the Fed has opted for smaller rate hikes. According to the forecast published in March, decision-makers at the Fed expect the key interest rate to average 5.1 percent at the end of the year. This value has been reached with the current increase.
The Fed must now manage a balancing act in its monetary policy – because further significant interest rate hikes could unsettle the market. At the same time, inflation in the US is still too high. In March, consumer prices rose by 5.0 percent compared to the same month last year. Although this is the lowest value since May 2021, the target inflation rate is two percent on average.
There is currently unrest on the markets, but also because of the dispute over the debt ceiling. US Treasury Secretary Janet Yellen warned that the world‘s largest economy could default on June 1 if the debt ceiling is not raised. This is also weighing on the US economy – and could depress growth.
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