Status: 04.05.2022 21:01
The US Federal Reserve reacted to the high inflation and raised the key interest rate by 0.5 percentage points. In future it will be between 0.75 and 1 percent. It is the largest increase in 22 years.
As expected by analysts, the US Federal Reserve Bank (Fed) has raised interest rates. Due to the increase of 0.5 percentage points, it is now in a range of 0.75 to 1 percent. It is the first such a large increase in 22 years. Usually, the Fed prefers to raise interest rates in 0.25 percentage point increments.
“Inflation is way too high,” Central Bank Governor Jerome Powell told reporters. “We will act quickly to lower them once more,” he promised. At the next meetings of the Central Bank Council, increases of 0.5 percentage points should therefore be forthcoming once more, he said.
A balancing act for the Fed
The central bank lowered the key interest rate to zero at the beginning of the Corona crisis in March 2020 to support the economy. In the course of the economic recovery, however, consumer prices rose sharply – by 8.5 percent year-on-year. This is the highest rate of inflation since 1982. Disruptions in supply chains, significantly higher oil and energy prices and labor shortages are driving inflation.
In March, the Fed raised interest rates for the first time since 2018 – by 0.25 percent. Fed Chairman Powell said at the end of April that the aim was to use the central bank’s tools in such a way that supply and demand adjusted once more and inflation came down. The economy should cool down in a way that does not correspond to a “recession”. The balancing act will not be easy, he said.
Increases in the key interest rate make credit more expensive and curb demand. “There has never been such a rapid interest rate path while the global economy weakened so rapidly at the same time,” said Jochen Stanzl, an analyst at the trading house CMC Markets.
In addition, the monetary authorities in Washington decided to gradually reduce the Fed’s balance sheet, which had grown to almost nine trillion dollars as a result of massive bond purchases, from June onwards. This withdraws liquidity from the financial markets.
Together with the interest rate increases, the Fed wants to make loans more expensive and curb demand with this step. The announced reduction was largely expected by the financial markets.
The Fed is committed to the goals of price stability and full employment.
