Federal Reserve raises interest rates in the United States to the highest level since 2001
The Federal Reserve has increased interest rates in the United States by a quarter percentage point, bringing it to a range of 5.25 to 5.5 percent, which is the highest level since 2001. The central bankers of the Fed explicitly keep the door open for further interest rate hikes.
With this new increase, the pause in interest rate hikes that the American central bank initiated last month comes to an end. Prior to that, the Fed had raised interest rates ten times in a row. However, it proved insufficient to bring inflation under control. Particularly, the core inflation, which excludes the volatile prices of energy and food, remains high.
The Fed justifies the latest increase by pointing to the strong labor market. Labor shortages are leading to higher wages, which in turn fuels inflation. However, the robust labor market is also a sign that the U.S. economy is still resilient and not on the verge of an immediate recession.
Through the higher interest rates, the Fed hopes to moderate economic activity. Borrowing money becomes more expensive, and as a result, businesses are expected to be more cautious with investments. Consumers are also expected to borrow less money, for instance, to purchase expensive items.