The meeting minutes from July provide an insight into the expected US economic development.
(Photo: Reuters)
new York The high rate of interest rate hikes by the US Federal Reserve will probably slow down for the foreseeable future. Minutes of the July 26-27 meeting of the FOMC Monetary Policy Committee, released Wednesday, said: “Participants believed that as monetary policy tightens further, it will likely be appropriate at some point to slow down the pace of policy rate hikes to slow down.” Then one must assess the impact of the interest rate hike on economic activity. The Fed minutes are important for investors as they contain clues about future US interest rate policy.
The US Federal Reserve raised its key interest rate by 0.75 percentage points to between 2.25 and 2.50 percent at the most recent meeting. It was the fourth increase in the key interest rate since the beginning of the corona pandemic – and the second increase in a row by 0.75 percentage points since 1994. The reason for the decisive action is the very high inflation. The annual rate was 8.56 percent in July. The Fed is targeting a rate of 2 percent.
First of all, however, further interest rate increases are appropriate, according to the minutes. The central bank must switch to a restrictive monetary policy. This dampens economic activity to combat inflation. Otherwise there is a risk that the Fed’s ability to fight inflation will be called into question. Most recently, Fed officials initially held out the prospect of further significant interest rate hikes in speeches.
After the publication of the Fed minutes, yields on two-year government bonds fell, and the dollar exchange rate fell slightly. US stocks, on the other hand, reacted positively and partially recovered some of the trading day’s initial losses.
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More: Inflation in the US is moderating – but pressure on the Fed remains high.