- Natalie Sherman
- New York – BBC
Federal Reserve Chairman Jerome Powell
The US central bank raised interest rates once more, and warned that more hikes would be necessary to curb the pace of rapid price increases.
And the Federal Reserve’s forecasts showed that the bank’s main interest rate may exceed 5 percent annually from now.
But lawmakers have begun to move more cautiously, following signs that the country’s biggest inflation in decades is beginning to abate.
They agreed to raise the bank’s key interest rate by half a percentage point.
That pushed the Fed’s benchmark interest rate target range up from 4.25 percent to 4.5 percent – the highest rate in 15 years.
However, this increase was less than what was announced in the recent period.
Fed Chairman Jerome Powell said the bank wants to slow down to see how the economy responds to the cumulative impact of the increases, which have made mortgages, auto and business loans more expensive and credit card debt more expensive.
But he cautioned that Wednesday’s increase “is still a significant increase historically and we still have a long way to go.”
The world is closely watching the US central bank’s moves, as the US is leading a global shift towards raising borrowing costs following years of low interest rates that followed the financial crisis.
The United Arab Emirates and Saudi Arabia were among the countries that raised borrowing costs on Wednesday, blaming the Federal Reserve’s rate hike decision.
The Bank of England, which has warned that the country faces its longest recession ever, is expected to announce an increase of half a percentage point on Thursday, following approving an even larger increase last month. The European Central Bank is preparing to take a similar step.
Is inflation improving?
The increase, announced on Wednesday, is the seventh by the Fed this year.
The bank responds to inflation in the United States, which remains close to its highest level in 40 years, although it has fallen since it reached a peak of 9.1 percent in June, supported by lower energy costs.
The latest US figures showed that consumer prices fell 7.1 percent in the 12 months ending in November, from October prices of 7.7 percent.
Powell said the bank had been motivated by indications of improving inflation, but that it would take “significantly more evidence” to be confident it was on a sustainable downward trajectory.
added : “It’s good to see progress but we have a long way to go to get back to price stability.”
By increasing borrowing costs, the Fed hopes to cool economic activity and ease upward pressures.