The central bank began raising interest rates last year to curb inflation, shortly after the war in Ukraine broke out. By making debt more expensive, central banks hope to curb demand in the economy, which should curb inflation. US interest rates are now between 5.25 and 5.50 percent, the highest level since 2001.
Central bank policymakers expect a series of interest rate hikes over the past year and a half to hit the economy and the labor market as well. This is due not only to more limited borrowing options, but also to tighter financial conditions for companies and households. According to them, it remains uncertain how strong this effect of interest rate hikes will be.
Gross domestic product
For now, higher interest rates don’t seem to be hitting the US economy hard. For example, GDP rose faster in the third quarter than in the previous three months, mainly because consumers spent more. On Wednesday, the U.S. Bureau of Labor Statistics released job vacancy statistics, indicating a tight labor market.
The central bank has now left interest rates unchanged three times this year. After the previous interest rate decision, in September, most policymakers indicated they expected at least one more increase in 2023. But Powell said at the time that inflation was close to the desired 2 percent, allowing the central bank to proceed more cautiously. In buying loans at higher prices.
Good direction
Powell delivered a similar message when explaining the latest interest rate decision. At the same time, he stressed, it is uncertain that the central bank has done enough to move inflation in the right direction. “An interest rate cut is absolutely not on the agenda,” he stressed.
Asked about a still-strong U.S. economy, Powell said he was pleased to have already shaved off a significant portion of inflation without further contraction or job losses. But he predicted that tighter monetary policy would actually weaken economic growth and the labor market in the future.
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