- In an effort to stabilize prices in the greatest economy in the world, the US central bank has increased interest rates to the highest level in 22 years.
- As a result of the decision, the Federal Reserve’s significant benchmark rate was raised to a range of 5.25% to 5.5%.
- It was the eleventh hike since the Fed began raising borrowing prices in early 2022 in an effort to slow the economy and reduce price inflation.
- The Fed already issued a warning that it may raise rates, albeit more gradually. The choice was made on Wednesday before meetings of the European and Japanese central banks.
- The Bank of England is generally anticipated to increase its key rate from the current 5% at its next meeting in the UK, where inflation was 7.9%. Some commentators in the US claimed that the Fed had made enough progress.
- In June, US inflation was 3%. When prices were climbing at the quickest rate in four decades last year, they peaked at more than 9%.
- “We think they’re at a point where the Fed funds rate is restrictive enough to slow the economy, slow activity, and allow inflation to trend lower,” said Kathy Bostjancic, chief economist at insurance company Nationwide Mutual.
- Theoretically, increased borrowing rates should result in less demand for loans for house purchases, company expansions, and other types of expenditure, eventually cooling the economy and making it more difficult for companies to raise prices.
- However, the US economy has fared better than many had anticipated thus far, notably in the labor market, where salaries are increasing and job creation is still occurring at a rapid clip.
- The Fed was wary of declaring victory too soon, according to Andrew Patterson, senior economist at Vanguard, noting that core inflation, which excludes food and energy costs, remained higher than the Fed’s 2% inflation objective.
- He asserted that decision-makers were aware of the errors committed in the 1960s and 1970s, when bank executives welcomed indications that inflation was lessening only to have the issue reemerge.
- “They had a positive inflation report this past month, but… they’re going to want to see more of that going forward before they’re comfortable,” he added. “They’re not going to remove anything from the table or corner themselves.”
Source:
BBC
