The US Federal Reserve raises the key interest rate again by three-quarters of a point – economy


The US Federal Reserve (Fed) has further intensified the fight against the high inflation rate and its most important policy rate raised by three quarters of a point for the third time in a row. As the Fed announced on Wednesday evening after two days of deliberations by its interest rate policy committee, the so-called overnight target range is now between three and 3.25 percent. Real estate, car, bank and other loans are likely to become more expensive accordingly. In the spring, the target range was only just above the zero line.

The aim of the currency guardians is to dampen the strong demand from citizens and companies for goods and services and in this way to reduce price pressure. In the run-up to the meeting, some experts had therefore even recommended an interest rate hike by a full point: they pointed out that although the inflation rate in August had fallen for the second time in a row to 8.3 percent, the reduction was progressing much more slowly than had been hoped .

After the start of the rise in inflation in spring 2021, central bank chief Jerome Powell and his colleagues had long bet that the price problem would solve itself once the corona-related supply bottlenecks around the world were resolved. At the latest with the Russian attack on Ukraine, however, it was clear that this hope would not be fulfilled. Since then, the Fed has ended its zero interest rate policy to support the economy and increased its benchmark rate at a rate not seen since the 1980s. However, the line that Powell walks is a fine one: Every supposedly defensive statement is immediately understood on the stock exchanges as an invitation to restart the price fireworks of the past and create new speculative bubbles. Conversely, overly aggressive rhetoric can cause the stock and real estate markets to collapse, triggering an economic downturn.

The Fed leadership has therefore been trying for weeks to make it clear that the fight against the inflation should not result in a deep recession, but it will probably not happen entirely without “pain” on the labor market. Since then, politicians, companies, citizens and stock market traders have been puzzling over how high the key interest rate will rise, how long it will remain above four or even five percent and how many job losses Powell could accept until his personal pain threshold is reached. Many experts assume that the unemployment rate will have to rise from the current 3.7 to six or even seven percent in order to significantly and sustainably reduce the overall economic pressure on consumption, wages and prices.

This would put Powell in a quandary, after all, according to the Fed’s statute, the highest possible level of employment is just as important a goal as securing stable prices. President Joe Biden was also in trouble, because as much as he is hurt by the high inflation rate in the opinion polls, he has little interest in the fact that unemployment figures are soaring.



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