The main US interest rate has been at historically low levels of 0 to 0.25 percent since March 2020. In mid-March, the rate was increased to 0.25 to 0.50 percent. In May, the Federal Reserve announced another sharp increase from half a percentage point to 0.75 to 1 percent. Today, another 0.75 percentage point will be added to 1.50 to 1.75 percent. That is the largest interest rate hike since 1994.
The third hike is yet another attempt to cool inflation in the US. It rose to 8.5 percent in March in the United States, the highest level in 40 years. The economic growth forecast in the US has been revised downwards from 2.8 percent to 1.7 percent.
Higher interest rates can slow down consumption somewhat and thus reduce the pressure on prices. The other side of the coin is that that weighs on economic growth. It is therefore important to find a good balance.
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