May 25, 2024


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The Federal Reserve raises US interest rates less sharply

The Federal Reserve raises US interest rates less sharply

Photo: ANP

The Federal Reserve raised US interest rates by 0.5 percentage point, as expected. This increase is less robust than the last four times, when 0.75 percentage points were added each time. The US central bank saw less room for an increase as inflation appears to have passed its peak. However, Fed policymakers indicate that there is room for further rate hikes. They want to see more evidence that inflation is slowing before they stop raising interest rates.

US interest rates are now in a range of 4.25 to 4.5 per cent. Federal Reserve policymakers believe they need to raise interest rates to 5.1 percent to get inflation under control. This higher level was generally stronger than economists expected and the US stock markets immediately gave back the small gains they made. In particular, stocks of technology companies, which are most sensitive to high interest rates, fell.

The Federal Reserve expects the economy in the United States to grow by 0.5 percent this year. This is a more positive picture than in the previous estimate in September. Central bankers also expect such little economic growth next year before the US economy rebounds again with growth of 1.6 percent in 2024 and 1.8 percent the following year.

The Fed expects unemployment to peak at 4.6 percent next year. That’s still too low to ensure wages don’t go up, as policymakers expect. So many Fed followers expect the US to experience a short recession after all. It wouldn’t be too deep given the economic growth projected for the whole of 2023. However, Fed Chairman Jerome Powell disagrees. According to him, the Fed is not counting on recession, and the economy has contracted in at least two consecutive quarters.