The US central bank has decided to raise interest rates to the highest level in the last 22 years.
This measure, according to experts, is necessary to stabilize prices in the world’s largest economy. As a result of the bank’s decision, the Federal Reserve’s base rate rose to a range of 5.25% to 5.5%.
This increase was the eleventh in a row since the beginning of 2022. The beginning of this trend was the Fed’s strategy to increase the cost of borrowing as part of efforts to improve the controllability of the economic system and weaken price inflation.
Fed Chairman Jerome Powell announced his intention to hold a meeting after the meeting. He also admitted the possibility of raising the rate in September if the situation that will be observed by this period requires appropriate decisions.
The Fed’s announcement was made public on Wednesday, July 26, ahead of central bank meetings in Japan and Europe. The Bank of England will decide on the level of the key rate in August. It is expected that the financial institution will increase this indicator from the current 5%. Currently, inflation in the UK is 7.9%.
In the US, some analysts say that the Fed’s actions are sufficient. In June, inflation in this country was fixed at 3%. Last year, the peak value of this indicator was 9%. In 2022, in the United States, price growth was the fastest in the last 40 years.
Kathy Bostjancic, chief economist at insurance company Nationwide Mutual, said she doesn’t expect another increase in interest rates in the United States this year. In her opinion, the current federal funds rate is tough enough to slow down the economy and contain inflation.
The Fed, by consistently raising interest rates, put an end to the era of cheap borrowing that began during the 2008 financial crisis. For consumers, these solutions were identified in the form of more expensive loans.
In theory, the Fed’s actions should reduce the demand for borrowed funds and stimulate savings, which will entail a process of so-called cooling of the economy, which will make it difficult for companies to realize the opportunities to raise prices.
Mr. Powell said he expected a further weakening of the labor market and an even greater slowdown in economic growth. He noted that the Fed does not seek to increase the scale of unemployment, but at the same time cannot ignore historical data.
Mr. Powell said that core inflation, which does not include the cost of food and energy, is twice as high as the financial regulator’s target of 2%.
Andrew Patterson, senior economist at Vanguard, says that the Fed released a positive inflation report last month, but there is no desire to report the achievement of the main goal as soon as possible. According to him, the regulator wants to make sure that good results will form a long-term trend with a high level of guaranteed implementation.
David Henry, investment manager at Quilter Cheviot, said that the Bank of England and the European Central Bank are lagging behind the United States in their efforts to control inflationary processes. In his opinion, this circumstance may cause a split or bifurcation of policy between developed economies.
As we have reported earlier, Fed Fines Deutsche Bank.