The US Federal Reserve (Fed) is taking a pause in raising interest rates in the fight against inflation. The US central bank umbrella had previously raised interest rates ten times in a row. However, there were hints of further interest rate hikes later this year.
The Fed’s decision to pause is not unexpected. A large majority of economists had already expected the Fed to leave interest rates unchanged.
In the previous decision in May, the interest rate in the United States was raised by a quarter of a percentage point to a range of 5.00 to 5.25 percent. That is the highest level in sixteen years.
By making borrowing more expensive, the Fed is curbing demand in the economy and that should stop prices from rising as fast. The danger is that the economy could end up in a recession due to declining demand. The Fed began raising interest rates in March last year.
Fed Chairman Jerome Powell pointed out in May that strong intervention is less necessary. This is because the US financial sector is already experiencing so-called monetary tightening as a result of the recent turmoil in the banking sector. As a result, banks have become more cautious in granting new loans, so that borrowing costs do not have to be increased as much to curb demand.
Inflation in the US cooled somewhat
On Tuesday it was announced that inflation in the world’s largest economy had cooled to 4 percent in May. However, core inflation, which does not take into account the volatile energy and food prices, remains stubbornly high and stood at 5.3 percent.
The decision to leave interest rates unchanged was taken unanimously by policymakers, according to a statement from the Fed. The Fed also states that the banking sector is healthy and recent job growth has been robust. Inflation remains at an elevated level. The central bank now wants to take a moment to review all the information to determine its impact on policy.
In a statement, Powell said there is still “a long way to go” to bring inflation down to the target of 2 percent. The Fed will decide on interest rates at each meeting, depending on the information. Powell said the decision to leave interest rates unchanged was “prudent”.
2023-06-14 18:49:39
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