2023-11-01 18:11:46
Fed leaves key interest rate unchanged
Despite continued high inflation, the US Federal Reserve is keeping interest rates at their highest level since 2001.
The US Federal Reserve is taking another interest rate break. Fed Chairman Jerome Powell in Washington.
Photo: Keystone
The US Federal Reserve left its interest rates unchanged for the second time in a row. The key interest rate therefore remains in the range of 5.25 to 5.5 percent – the highest level in more than 20 years. The central bank announced this after a meeting on Wednesday.
The Federal Reserve (Fed) raised the key interest rate eleven times in 16 months in the fight against high inflation – most recently by 0.25 percentage points in July. It is one of the fastest and sharpest interest rate hikes in its history.
The central bankers then took a break in September – just as they had done in June. Wednesday’s decision marks the first time since the beginning of last year that the Fed has left the key interest rate unchanged at two meetings in a row.
When making decisions, the Federal Reserve weighs up the risk of inflation and the risk of the economy slowing too much. Higher interest rates slow price increases – but also consumer spending, which is the mainstay of the US economy. Because this makes it more expensive, among other things, to buy houses or cars on credit.
Since March 2022, the Fed has raised its key interest rate by more than five percentage points. The rapid inflation was triggered, among other things, by the rise in energy prices after the Russian attack on Ukraine.
Inflation is weakening
The latest economic data showed that inflation remains higher than the Fed’s target, but is weakening – and economic growth is high at the same time. From the point of view of some experts, this is a rather unusual situation.
Despite the high interest rates, gross domestic product rose by 4.9 percent in the summer compared to the previous quarter. This was the strongest growth in the world’s largest economy in seven quarters. Economists had on average only expected growth of 4.5 percent.
The boom in the US economy carries the risk that inflation could pick up speed again. The question for the future now is whether the Fed might consider further interest rate hikes necessary later on. Some experts in the USA can already imagine this for December or next year if the economy remains strong.
On the other hand, defaults in servicing loans have recently increased again and in surveys more consumers spoke of tightening finances. This could indicate that consumer spending may be cooling even without further interest rate hikes.
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