With the renewed jump in interest rates by 0.25 percentage points, the US base rate is now in the range of 5.0 to 5.25 percent, as the Federal Reserve (Fed) announced. This is the highest value since 2007 – i.e. before the start of the global financial crisis. It is the tenth rate hike in a row since March last year. The current interest rate decision was made against the background of the latest turbulence in the banking sector, a weakening economy, fears of a recession and fears of a possible US default.
The US Federal Reserve is not looking at the cards
But those who hoped that the monetary watchdogs would now clearly hold out the prospect of an interest rate pause were disappointed. Fed Chair Jerome Powell opened the door to a possible interest rate pause, but did not commit himself. “Inflation has moderated somewhat since the middle of last year, but inflationary pressures remain elevated,” Powell said. “I think monetary policy is tight.” Possibly one has reached a sufficiently high interest rate level, or at least not far away from it.
At the same time, Powell dampened market expectations of rate cuts in the near future. With the Fed currently assuming that the strong inflation will not abate anytime soon, Powell believes that cuts would be inappropriate in such an environment. The next meeting of the Fed’s monetary policy committee will take place in mid-June.
US inflation rate last at 5.0 percent
The Fed has been on a tough monetary policy stance for more than a year given the sharp rise in consumer prices in the US. The inflation rate hit a 40-year high of 9.1 percent last summer. In the meantime, the inflation rate has fallen to five percent – but it is still well above the two percent target of the Fed.
Most recently, the collapse of California’s First Republic Bank had caused new unrest. It was the second largest commercial bank failure in US history. The collapse of the Silicon Valley Bank (SVP) had already caused considerable turbulence in the banking sector and on the stock exchanges in March.
In any case, US economic growth has stalled. In the first quarter of the year, growth in the world‘s largest economy fell to 0.3 percent. Analysts assume that the USA could slip into a slight recession.
qu/mak (afp, dpa, rtr)