AFP
News from the NOS•
Interest rates in the United States continue to rise in the fight against inflation. The US central bank, the Fed, has the highest interest rate for the quarter increased by 0.75 percentage points consecutively. It is the sixth rate hike this year.
The Fed wants to counter the sharp rise in prices with the new rise in interest rates. In the United States, food prices are rising at the fastest pace since the 1970s, while wages are lagging behind. Economy is one of the main themes in next week’s mid-term elections.
The prime interest rate is now between 3.75 and 4.00 percent, the Fed reports. It’s the highest level in fifteen years. In comparison, the European Central Bank has raised the deposit rate the end of October 0.75 to 1.5 percent, which is much lower.
Less inflation, less economic growth?
Central banks around the world are trying to bring inflation down. Raising interest rates is the most important tool for this. The hope is that it will slow down the growth of the economy, and with it increase prices (and therefore inflation). It is a balancing act for central bankers. If the economy cools too much, a recession threatens.
Fed Chairman Jerome Powell spoke at an economic conference in late August Jackson Hole already in view of further interest rate hikes in the United States. At the time, he said he was aware that rising interest rates affected Americans financially. “It will hurt some,” he said at the time.
Powell made it clear that price stability was his top priority and that slightly lower economic growth had to be considered
Equity markets are not happy with interest rate hikes. It makes it more expensive for companies to borrow money, putting pressure on profits. And the prospect of lower profits leads to a new drop in prices. A higher interest rate also makes it more attractive to lend money instead of investing in stocks.
