The US Federal Reserve raised its target interest rate by a quarter of a percentage point.
The hike raised the central bank’s interest rate, which affects most consumer and business loans, including credit cards and mortgages, to 4.50 percent to 4.75 percent, the highest level since November 2007.
Federal Reserve Chairman Jerome Powell warned that despite clear signs of a slowdown in US inflation, “there is a lot of work to be done” and higher rates will be needed in the future.
He said inflation forecasts show inflation is lingering and interest rates will not fall in 2023.
“We live in a time of great uncertainty. Inflation is still high. We have work to do and we are not done yet,” he said.
“Inflation is down. We’ll be careful. This is a unique situation. We won’t declare victory [over inflation] still. We don’t see interest rates falling this year, but if things change and inflation picks up, we’ll look at that again.”
The rise in the US, the latest in a string of sharp increases that began in March last year, is under scrutiny by Bank of England (BoE) rate planners, who are now deciding whether to raise rates here or not.
The Bank of England is expected to raise interest rates by 0.5 percentage points from 3.5% to 4% to bring inflation down from the current 10.5%.
The Bank of England wants to head off a recession in the UK by raising borrowing costs, but its mandate is to keep inflation around 2%.
The International Monetary Fund said this week that it expects the UK to slide into recession this year due to high energy prices, rising mortgage payments and higher taxes, and a labor shortage.
Inflation has fallen to 10.5% but remains close to its highest level in 40 years as British households continue to suffer from the cost of living crisis.
The European Central Bank (ECB) is also expected to follow the Bank of England’s rise tomorrow, after data released yesterday showed that core inflation in the euro area remained at a record high of 5.2 percent last month.
Economists said the Federal Reserve has been able to contain the rapid rise in interest rates this month as the latest data showed that US workers’ wages are not rising as fast as initially feared, consumer spending has slowed and production has fallen.
Major US companies, including Amazon, Walt Disney, Microsoft and the owner of Facebook Meta, are laying off tens of thousands of employees.
Last night, the FedEx delivery group announced that it would lay off one in ten managers worldwide.
US inflation excluding food and energy fell to 4.4 percent last month from 5.2 percent in September. The Fed acknowledged the improvements but gave no indication that rates were close to their peak. Inflation will remain “elevated,” she warned.
The Interest Rate Fixing Commission, chaired by Jerome Powell, said that “further rate hikes” would be “appropriate to be hawkish enough” to slow the US economy and curb inflation.
Wall Street stock prices fell after the decision of the US Federal Reserve. The S&P 500 was down 0.2% and the Dow Jones was down 0.7%. US financial markets expect interest rates to rise by at least another 0.25 percentage points before peaking in interest rates.
Source: I News
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