- Natalie Sherman
- Business and Finance Correspondent, New York
The US central bank raised the interest rate to its highest level in 16 years, in an effort to ensure price stability.
The interest rate rose by 0.25 percent, the tenth rise in 14 months.
The Central Bank indicated on Wednesday that this is the last rise it has decided so far.
The reference price moved from 5 percent to 5.25 percent, while it was close to zero in March 2022.
And the high reference rate, in the world’s largest economy, led to a sharp rise in the cost of loans, which necessitated a slowdown in activity in sectors such as housing, and had a role in the recent bankruptcy of three US banks.
“We are no longer saying we are anticipating additional interest rate increases,” US central bank chief Jerome Powell said in a press conference after the announcement, describing the measure as a “big change.”
But he refused to rule out additional measures, saying, “We will see what the new data brings.”
The central bank began aggressively raising interest rates last year, when prices in the United States rose at their fastest rate in decades.
Central banks around the world, including Britain and the European Union, have taken similar measures.
High interest rates make it difficult to buy a home, borrow to expand a business, or go into debt again. Officials expect the higher cost to lead to lower demand and lower prices.
Since the US central bank launched its campaign, signs of calming prices have appeared.
The inflation rate stabilized in March at 5 percent, the lowest rate in two years. But it is still high for the US Central Bank, which aims at 2 percent.
Gregory Daco, an economist at the consulting firm, EY Parthenon, believes that the US central bank should be “cautious” and stop now, because the risks of slowing activities on the economy are beginning to grow.
“Fears of entering a recession exist today. I do not think that the battle of inflation is over. However, we notice a gradual slowdown in inflation, but we are in a situation where the interest rate is high, which constitutes an impediment to economic activities, and leads to a further slowdown in inflation in the coming months.”
Bill Taubner, president of Ball Manufacturing in New York, says customers have become wary in recent months, due to economic concerns.
His company also declined to fill its warehouses due to the high prices.
But he said his company did not need immediate borrowing, and he hoped the impact of the slowdown would be mild and for a short period.
He added, “We noticed some fragility in the markets due to inflation, and the interest rate of course, but in the long run we are optimistic.”
Powell expects that the US economy will be affected by bank failures in the recent period and the resulting shrinkage in lending.
However, he said that he is very hopeful that the United States will avoid economic recession, pointing to the large employment force and the low unemployment rate in the country.
The Fed’s action on Wednesday was expected in the financial markets, which are now watching any indications of the next plan.
In a statement, the Central Bank canceled previous directives it issued in March, saying: “It may require further strengthening measures,” in order to control inflation.
Powell said in a press conference that the central bank has reached the stage of stopping raising interest rates, but it is ready for more if necessary.
And Whitney Watson of Goldman Sachs believes that the US central bank may raise the interest rate again, given what will happen in the coming months.
She said, “Inflation is on the right path, but progress has been volatile. Therefore, stopping interest rate hikes is appropriate now, but more measures are possible if inflation persists.”
2023-05-04 04:00:11
#Central #Bank #raises #interest #rate #highest #level #years #BBC #News #Arabic