The Federal Reserve raises its key interest rate by 0.25 percentage points. Six more price increases will follow later this year.
US Central Bank President Jerome Powell announced Wednesday evening as expected that the US key interest rate will rise by 25 basis points (or 0.25 percentage point), to a range of 0.25 to 0.50 percent.
It is the first interest rate increase in the US since 2018. At the beginning of 2020, when the Corona pandemic broke out, the Federal Reserve set the US interest rate at 0% to stimulate the economy. Now it is useless.
With interest rates rising, Powell hopes to combat rising inflation in the US (more than 7 percent in February). The Federal Reserve continues to target an inflation rate of 2 percent. Higher interest rates can slow down consumption to some extent and thus help reduce pressure on price formation.
The Fed said this approach could weigh on economic growth, but the US economy is strong enough to withstand the rate hike. Last year, there was an economic growth of 5.7 percent.
Striking: This rate increase will be the first in a long line. Federal Reserve officials are targeting a base rate of 1.9 percent by the end of this year. If they want to achieve this goal in small steps — every 0.25 percentage points — six more interest rate increases should follow in the rest of 2022.
† A nightmare for all investors
An interim decision may be taken to go ahead with a 50 basis point (0.50 percentage point) rate increase, if inflation remains higher than expected. This first rate hike was approved by eight of the nine Federal Reserve executives who are eligible to vote. One director actually wanted to raise interest rates by 50 basis points. The Fed expects US interest rates to be at 2.8% by the end of 2023.
For now, zero interest rates will remain in Europe. The European Central Bank first wants to end its bond-buying program – perhaps in the third quarter of 2022 – and then raise European interest rates for the first time, perhaps in the fourth.
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