The Fed raises interest rates for the third time in a row

Die Federal Reserve is determined to curb inflation: it raises the key interest rate by 0.75 percentage points and holds out the prospect of further rate hikes. It is the third rate hike of this magnitude in a row. The decision announced on Wednesday evening was unanimous.

Bank overnight lending rates are now in the 3 and 3.25 percent range. The central bank expects “further hikes to be appropriate,” says the statement released after the two-day Fed meeting. She was "wildly determined, the inflation return to the target of two percent," it said. US core inflation was 6.3 percent in August.

The sharp rise in interest rates has investors in the Wall Street frightened on Wednesday. After an up and down of prices after the interest rate hike, the Dow Jones lost 1.70 percent to 30,183.78 points. In late trading, the pressure to sell increased, and the leading index fell to its lowest level in more than two months.

Fed chief Jerome Powell said the Fed will continue to tighten monetary policy until there is convincing evidence that inflation is easing. A successful policy to reduce inflation requires a prolonged period in which economic growth is below the growth trend and potential of the economy. In addition, the labor market must cool down. He reiterated the key message of his Jackson Hole keynote speech that pain is essential. Lessons from the past showed that a premature return to easy monetary policy is harmful and prolongs suffering.

The Fed's determination is also reflected in the Fed's projections, which combine central bankers' forecasts for growth, unemployment, inflation and growth. On average, the central bankers expect that the policy rates climb to 4.4 percent this year. That would mean two more rate hikes later this year. Two Fed meetings are still to come this year. For next year, the central bankers expect only a small increase in interest rates before monetary policy is then eased again slightly from 2024 onwards. As a result, the inflation target of almost two percent will not be reached before 2025.

The price of tightening is shrinking economic growth: For this year, the central bankers predict almost stagnation with growth of just 0.2 percent. In the years that follow, growth is projected to remain below two percent, while the unemployment rate rises to as much as 4.4 percent.

Source link