The Federal Reserve has again raised interest rates in the United States by 0.75 percentage points. The policymakers of the US umbrella company of central banks believe that this harsh intervention is necessary to control inflation.
Last June, the Fed raised interest rates by 0.75 percentage points. Since the early 80s, the central bank has not raised interest rates so quickly.
In an explanatory note, the Fed indicates that it is monitoring inflation very closely. The war in Ukraine is causing an increase in inflation and at the same time putting pressure on economic activities, the policymakers report.
The central bank notes that business and consumer spending have decreased slightly, but the labour market is still strong. The Fed said there was room for another hike.
Due to the interest rate hike, the policy rate is at 2.25 to 2.5 percent. The increase was unanimous, unlike the previous step. Then one policy maker was not convinced of the need for such a large increase.
Next rate hikes will be “appropriate” according to the Fed, with a new step of three-quarters of a percentage point is not excluded, said Fed Chairman Jerome Powell. “That will depend on the data,” Powell said.
The effects of the previous rate hikes are likely not yet fully visible in the economy, Powell says. If these consequences do become clear, the Fed may be able to do with a smaller increase in september.
Powell noted that the strong labor market and The Associated wage increases were worrying him. Falling spending is just the beginning of slowing growth, a process that should eventually lead to less rapid price increases. “We need to make the economy grow faster.” This can solve supply problems and remove part of the cause of high inflation.
Recession is still not on the table
The central bank is not yet afraid of a recession, with the economy shrinking for two quarters in a row. Powell points out that it would not make sense for the economy to shrink now that jobs are still being added. But the path to avoiding a recession is becoming increasingly narrow, Powell said.
Furthermore, according to the Fed chairman, it is important to take strong action against high inflation before it settles and is seen as normal. “If we don’t act now, it will only be more expensive to do something later.”
The stock markets hardly reacted to the interest rate increase because it corresponded to expectations. The dollar has fallen somewhat in value against the euro.