US Federal Reserve: US Federal Reserve does not rule out another interest rate hike this year

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Interest rates next year may also be higher than previously expected. The Central Bank Council decided at its current meeting to keep the interest rate between 5.25 and 5.5 percent. This is the highest level in more than 20 years. However, Fed Chairman Jerome Powell did not want to ignore the possibility that interest rates could increase further. It has not yet been decided whether the current interest rate is sufficient.

At the press conference held after the meeting, the Fed chairman emphasized that data for the coming months will determine the central bank’s approach. In its current forecast, the Fed expects an average interest rate of 5.6 percent at the end of the year. An average of 5.1 percent is expected for 2024; In June, this rate was 4.6 percent.

Referring to inflation, Powell said, “We have seen progress and we welcome that.” But he warned that now we have to wait and see how the situation develops. “Even though they’ve made great progress, they don’t want to declare victory too soon,” said Diane Swonk, chief economist at audit firm KPMG, according to the Washington Post.

Keeping inflation under control is the classic task of central banks. The Fed aims for price stability with an inflation rate of 2 percent in the medium term. The Fed had increased the interest rate eleven times since March 2022 as part of the fight against high inflation; It was last increased by 0.25 points in July. The cycle is considered one of the fastest and sharpest tightening periods in the Fed’s history.

However, in June, monetary authorities took a break after ten consecutive interest rate hikes. Analysts were expecting a new decline in interest rates. “We have accomplished a lot, and the effects of our tightening are not yet being fully felt,” Powell said.

The inflation rate rose to nine percent last year and then slowly fell. According to the US government, consumer prices increased 3.7 percent in August compared to the same month last year. The Fed currently expects an average inflation rate of 3.3 percent this year; This rate is a slight upward correction of 0.1 points.

The Fed forecasts 2.5 percent for next year. This means that inflation is now falling steadily after a rapid rise. But Powell warned: “The forecasts are highly uncertain. Predictions are very difficult.”

In the fight against high consumer prices, the Fed is increasing interest rates to slow demand. If interest rates rise, private individuals and businesses will have to spend more on loans or borrow less. Growth is slowing, companies cannot pass on high prices indefinitely, and ideally the inflation rate is falling. But it also risks choking the economy. Finding the right balance is a big challenge for central bankers.

However, the Fed’s new economic forecast paints a very positive picture of the US economy. The Fed predicts that economic growth this year will be significantly higher than it was three months ago. Therefore, the gross domestic product (GDP) of the world’s largest economy will grow by 2.1 percent in 2023. This would be 1.1 points higher than forecast in June. However, next year the economy is expected to grow slightly slower again; central bankers predict growth will be 1.5 percent.

(SDA)

Source :Blick