As expected, the Federal Reserve (Fed), the central banking institution of the United States, raises the key interest rate in the United States by 50 basis points at once. The central bank made the announcement on Wednesday after its monthly interest rate meeting. Such a sharp increase existed before 2000.
The new rate hike – which added 25 basis points in March, is good for the first rate hike since 2018 – will help combat skyrocketing inflation. In March it was down to 8.5 per cent year-on-year, the strongest increase in consumer prices in forty years. Raising interest rates will make borrowing more expensive and demand less. But at the same time, high interest rates threaten to slow economic growth and lead to recession.
The core interest rate is now set at 0.75 to 1 per cent. Further interest rate hikes will continue in the US in the coming months. Many analysts also expect an increase of no less than 75 basis points in June. Such action has been in place since 1994.
Since 2000 – when the US economy was in danger of heating up due to the dotcom hype – the Federal Reserve has raised interest rates sharply. Then the interest rate was raised by 50 basis points simultaneously. Generally, the central bank operates at 25 basis points or 0.25 percentage points.
Gradual removal of bonds
The central bank also announced on Wednesday that it would begin finalizing its bond portfolio in June. That outflow will start at $ 47.5 billion a month and increase to $ 95 billion three months later.
The US Federal Reserve said the war in Ukraine and the lockout in China could exacerbate inflation and increase logistics problems.
Markets operate with relief
Financial markets, which have been under pressure for several weeks due to rising interest rates, are recovering somewhat. Today suddenly rumors spread that the Federal Reserve will raise the interest rate to 75, not 50 basis points, not the expected 50. If so, the markets will be facing a severe downside.(STC)