The US central bank, the Federal Reserve, raised its key interest rate by 50 basis points on Thursday, as expected. In the previous four times, interest rates were hiked by 75 basis points each time. This is another attempt to curb inflation.
The key interest rate is now in the range of 4.25 to 4.50 percent, the highest level since 2007. Federal Reserve Chairman Jerome Powell had previously indicated that the central bank would raise interest rates sharply. However, this does not mean the end of rising interest rates: the central bank expects interest rates to rise further above 5 percent.
In particular, central bank policymakers expect interest rates to rise to 5.1 percent to bring inflation under control. That high was stronger than economists had generally expected and U.S. stock markets immediately gave up small gains. In particular, technology stocks, which are highly sensitive to higher interest rates, fell.
Inflation is cooling
Meanwhile, inflation in the US appears to be easing. It was still 7.1 percent in November, the fifth consecutive decline. Speaking after the rate decision, Powell said, “Inflation data for October and November show a welcome slowdown in price increases, but further evidence is needed that inflation is steadily decelerating.”
The central bank expects inflation to ease to 3.1 percent next year from 2.8 percent in September. Economic growth in the U.S. will be 0.5 percent next year, where the Fed previously pushed ahead to 1.2 percent. After that, the U.S. economy should pick up again with growth of 1.6 percent in 2024 and 1.8 percent a year later.
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