The monetary authorities announced a 50 basis point hike, which means that the US interest rate is now in the range of 4.25 to 4.50 percent.
Experts had previously expected that from the Fed
Key interest rates are expected to rise by 0.5 percentage point to between 4.25 and 4.5 percent. The Fed has been raising interest rates rapidly in recent months
– the last time in November for the fourth time in a row – 0.75 percentage points. Typically, the Fed wants to raise interest rates in 0.25 percentage point increments.
After the Fed meeting, Fed Chairman Jerome Powell (20:30 CET) will explain the reasons behind this decision.
Inflation decreased in November
Inflation in the US weakened more than expected in November. Compared to the same month last year, consumer prices rose by 7.1 percent. Analysts had expected average inflation to reach 7.3 percent, down from 7.7 percent last month. This is the fifth consecutive decline in inflation. The Fed’s preferred medium-term inflation rate is two percent, and the new numbers are a long way from that. But they promise at least a little relaxation. The Fed is committed to the goals of price stability and full employment.
Inflation still reached more than 9 percent in the summer. That’s why the Fed has been raising interest rates rapidly over the past few months, most recently by a fourth consecutive 0.75 percentage point increase in November. Typically, the Fed wants to raise interest rates in 0.25 percentage point increments. 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.
Will the Fed trigger a recession?
Because with strict monetary policy Fed, the risk is growing that the central bank will slow the economy so much that the labor market and the economy grind to a halt. “There is always a risk of a recession. The economy remains vulnerable to shocks,” the US Treasury secretary said. Janet Yellen in a recent television interview. But the US has a healthy banking system and a healthy corporate and household sector. She was optimistic about the coming year. “I think inflation will be lower. I strongly believe that the labor market will remain relatively healthy.”
The US job market is booming. This is definitely a problem for the Fed. Many employers complain that they cannot find enough candidates. This affects wages, as workers’ bargaining positions are strengthened by relatively low unemployment. This means an additional risk of inflation – a spiraling of wages and prices.
Editorial finanzen.net / dpa-AFX
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