Change in interest rates: Inflation: US Federal Reserve raises key interest rate in a big way

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Change in interest rates

Inflation: The US Federal Reserve raises interest rates in a big way

06/15/2022, 8:14 p.m. | Reading time: 2 minutes

Fed Chair Jerome Powell speaks during a press conference following a Federal Reserve meeting.

Photo: DPA

To counter inflation, Fed Chairman Powell raises the key interest rate again – to 1.75 percent. This is the biggest jump in interest rates since 1994.

Washington. As US consumer prices surged 8.6 percent to a new 40-year high in May, the US Federal Reserve exited the Federal Reserve “Federal Stores” Fighting runaway inflation stronger than expected until recently: At its meeting on Wednesday, the “Fed” raised the key interest rate by 0.75 percentage points compared to almost 30 years ago. The interest corridor is thus between 1.5 and 1.75 percent.

The central bank is thus continuing on its way into spring – only even stronger. In March, the key interest rate was increased by 0.25 percentage points for the first time since the corona pandemic. In May there was a further increase of 0.5 percentage points. That was the largest increase in 22 years.

“Fed”: Interest rate hikes make loans more expensive

Acting for the “Fed” is a balancing act. According to its self-image, it should raise interest rates in order to curb high inflation in the long term; Two percent on target. However, it should not cause irreparable damage to the economy and the labor market (currently only 3.6 percent unemployment rate).

Through rate increase Loans are getting more expensive. This slows aggregate demand, helps fight inflation, but also slows economic growth in the world’s largest economy, which in turn weighs on the stock markets. In the worst case, a recession threatens.

Europe follows the U-turn in the USA in homeopathic steps

Some experts hope so for the coming year. Jamie Dimon, head of the major bank JPMorgan, warned of an “economic storm”. Goldman Sachs CEO John Waldron has predicted somewhat less alarming “tough economic times.” On the other hand, US Treasury Secretary Janet Allen is confident that a recession can be avoided.

In a later explanation of the interest rate decision, Fed Chair Jerome Powell pointed out in passing that his house could not influence all the reasons for the price increase. Disruptions in global supply chains and rising energy prices did not react to US interest rates. The aftermath of the war in Ukraine and the coronavirus lockdown in China are also well beyond the Federal Reserve’s ability to repair them.

in europe they do it U-turn in America In homeopathic steps. On July 1, the European Central Bank ended its multi-billion dollar bond purchases. At the ECB Council meeting on July 21, the central bank is expected to raise interest rates by 0.25 percentage points for the first time in eleven years.

This article first appeared on abendblatt.de.

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