Big hike: US Federal Reserve raises key interest rate as expected – more rate hikes reported | knowledge

Now it is policy norm from 4.25 to 4.50 percent, the Federal Reserve Bank (Fed) announced on Wednesday. This is the seventh increase this year. The Fed has recently raised interest rates four times in a row by 0.75 percentage points. Fed Chairman Jerome Powell indicated in November that at least those big jumps could be over.

New inflation data The Ministry of Labor now had to encourage him to take this decision. Inflation in the US weakened more than expected in November. Compared to the same month last year, consumer prices rose by 7.1 percent. This was the fifth consecutive decline in the inflation rate.

The US Federal Reserve has now released estimates of the inflation rate. This year, it expects the inflation rate to be only slightly higher than previously thought. The inflation rate is expected to reach an average of 5.6 percent. This indicates that the pace of price increases is slowing down. The Fed’s preferred medium-term inflation rate is two percent, and the new numbers are a long way from that.

The latest interest rate move is still sizable. Typically, the Fed wants to raise interest rates in 0.25 percentage point increments. But it still marks a break, far from particularly aggressive monetary policy.

But the Fed doesn’t seem willing to give up on high inflation any time soon. In the coming years, the Federal Reserve Bank will announce even more than before. Monetary policy is likely to ease in the coming years. However, interest rates are expected to be higher than previously indicated by central bankers.

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The Fed is also forecasting much lower economic growth in the coming year than expected three months ago. The gross domestic product (GDP) of the world’s largest economy will grow by 0.5 percent in 2023. This would be 0.7 percentage points less than forecast in September.

An increase in the base interest rate makes loans more expensive, which slows down demand. This helps to reduce the inflation rate, but also weakens economic growth. The Fed’s tight monetary policy increases the risk that the bank will slow the economy so much that the labor market and the economy grind to a halt. Recently, there has been criticism of the Fed’s actions. The accusations were that Fed Chairman Powell was raising interest rates too much and the US could be heading into recession.

It’s been a turbulent year for the US Federal Reserve. The drastic measures are the result of inflation, which has sometimes been higher than it has been for decades. The Fed struggled to keep pace with rising consumer prices. At first it seemed like no luck. This is also because the Fed’s interest rate decisions take effect only after a delay. Thus, the full force of unusually high interest rate hikes will be felt only in the coming years.

The Fed is committed to the goals of price stability and full employment. Analysts expect the Fed to initially raise interest rates further into 2023, albeit in small increments.

Powell, the chairman of the US Federal Reserve Bank, sees nothing rate reduction in the coming years

According to Fed Chairman Jerome Powell, the US Federal Reserve Bank is unlikely to cut interest rates in the coming years. Asked about the possibility of a rate cut in 2023, Powell said in Washington on Wednesday: “Our focus right now is to keep monetary policy tight enough to get inflation back to 2 percent over time.” So don’t worry about interest rate cuts.

Markets are currently speculating that the US economy will weaken so much in the coming years that the Fed will have no choice but to ease monetary policy again. After its latest rate hike on Wednesday night, the Fed raised its benchmark interest rate by 4.25 percentage points this year to combat high inflation. Some market participants see the risk that the Fed will take over the US economy and push it into recession.

Economists’ voices on the US Federal Reserve’s interest rate decision

The US Federal Reserve is slowing the pace of tightening, but does not want to give up the fight against high inflation. On the contrary: After their rate meeting in Washington on Wednesday, the monetary watchdogs even expect interest rate hikes in the coming year. Fed Chairman Jerome Powell is dismissing speculation about monetary easing in the coming year. What do economists say about this?

Michael Heise, Chief Economist at HQ Trust:

“I look forward to it raising interest rates 0.5…

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