Key rate reaches the highest level since 2007 crisis
The Federal Reserve on Wednesday approved the tenth rate hike in just over a year, but hints that this may be the last time. The US policy rate is now at between 5 and 5.25 percent, the highest level since 2007.
The increase in the policy rate by 0.25 percentage points was in line with the expectations of economists and investors. In particular, the markets hoped that central bankers would provide more clarity on their approach to the second half of this year.
The statement issued by the Federal Reserve after the policy meeting hinted at the possibility that Wednesday’s rate hike may have been the latest in a long string. In fact, the statement lacked a sentence that was repeated in previous editions:”the Committee expects that some additional policy guidance may be required to achieve the 2 percent inflation target”.
Federal Reserve Chairman Jerome Powell said in a press release on Wednesday that there is still concern about high inflation in the US. “Inflation remains well above our long-term goal of 2 percent,” Powell said. “Inflation has moderated somewhat since the middle of last year, but inflationary pressures remain high and the process of bringing inflation back still has a long way to go.”
He also indicated that he does not yet see room to reduce interest rates in the short term. “We have the position that inflation will not fall so quickly,” he said. “It will take some time and if that prediction is broadly correct, it would not be appropriate to lower rates and we will not do so.”
With this, Powell went against speculation in financial markets, where investors are betting on a series of interest rate cuts in the second half of this year. The idea is that the Fed should bend, at the moment when a recession sets in in the United States. However, Powell does not seem to want to deviate from the priority of bringing down inflation.
US stock markets ended slightly lower on Wednesday after Powell’s comments on inflation.
The Dow-Jones index ended 0.8 percent lower at 33,414.24 points. The broadly composed S&P 500 fell 0.7 percent to 4,090.75 points and Tech Exchange Nasdaq lost 0.5 percent to 12,025. 33 points.
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