The US Federal Reserve has declared war on inflation with another rate hike.
(Photo: Reuters)
Frankfurt The US Federal Reserve (Fed) has once again made its determination in the fight against inflation, which recently stood at 8.3 percent, clear. It raised interest rates by 0.75 percentage points (75 basis points) on Wednesday to a range of 3.0 to 3.25 percent. The markets had expected this step, but had not ruled out an increase of a full percentage point. Michael Heise, Chief Economist at HQ Trust, comments: “The Fed has hiked interest rates by 0.75 percentage points for the third consecutive time in the fastest rate hike cycle since the late 1980s. Their policy is therefore no longer to be seen as neutral, but as slowing the economy.” However, the question of when exactly interest rates will have a dampening effect is quite controversial among experts.”
Consensus on expert forecasts for the Fed meeting had long been at 50 basis points, but had risen to 75 after threateningly high inflation numbers for August. Inflation fell slightly in August, but less than expected. Also, prices increased slightly month-on-month instead of declining as previously forecast.
The main reason for the year-on-year decline was falling gasoline prices, partly due to the US government’s release of oil reserves. All other areas and the so-called core inflation, which does not take into account energy and food, rose significantly.
>> Read here: The week of the big jumps in interest rates
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Central banks around the world are taking action to combat inflation, and the Bank of England is expected to raise interest rates again on Thursday. Monetary policymakers face the dilemma that too weak a response could lead to inflation becoming entrenched, while too hard a stance could trigger a recession.
In the USA there is also the fact that economic momentum is difficult to assess. While the real estate market appears to be cooling, the labor market, which is driving consumer prices particularly strongly in the US, is likely to remain overheated.
Before the interest rate decision, Blerina Uruci, US economist at the fund company T. Rowe Price, summarized the situation as follows: “Inflation remains stubborn and the labor market is too hot. But growth is slowing and the real estate market is undergoing a significant correction.”
Fed Chair Jerome Powell has faced criticism for the past year because he was initially hesitant to respond to the rise in prices. It should be added that in the USA the inflation dynamics are much more clearly based on strong demand, which was also fueled by the government’s generous corona aid. In Europe, on the other hand, the sharp rise in energy prices has played the main role to this day.
Central banks can react much more easily to excessive demand than to a shortage of important goods such as gas.
>> Read here: “Interest rate hikes ECB are exaggerated”: Criticism of the jumbo rate hike is getting louder
Recently, a rather tough monetary policy course had also prevailed in other regions: The European Central Bank (ECB) dared to raise rates by 75 basis points, the Swedish Reichsbank even increased the key interest rate by 100 basis points this week.
More: “Incredible price hammer”: Producer prices in Germany are rising at record speed