Biggest jump in interest rates since 1994: The US Federal Reserve sharply raises key interest rates

As of: June 15, 2022 at 21:28

To combat high inflation, the US Federal Reserve sharply increased its key interest rate by 0.75 percentage points. As announced by the Fed, it currently ranges from 1.5 to 1.75 percent. It is the largest hill since 1994.

In the fight against high inflation, the US Federal Reserve raised its key interest rate more than since 1994. He approved an increase of 0.75 percentage points to the new 1.5 to 1.75 percent range. The Fed announced the third rate hike this year.

Monetary regulators have signaled they will make several more hikes this year to keep inflation in check. Their goal is an average interest rate level of 3.4 percent at the end of the year. In March, they predicted a value of 1.9 percent. Over the long term, the target interest rate level is 2.5 percent.

“Significant Rotation of the Interest Rate Screw”, Christian Stichler, ARD Washington, on key interest rate hike by the US Federal Reserve

tagesschau24 21:30, 15/06/2022

Inflation stays above the target for longer

Monetary politicians also raised their inflation forecasts. Despite the planned interest rate hikes, inflation is expected to average 5.2% in 2022, an increase of 0.9 percentage points compared to the previous forecast in March. Over the next two years, this ratio should drop to 2.7% and 2.3% respectively, thus approaching the target value of 2.0%.

For this year, the currency watchdogs currently forecast only 1.7%. economic growth, 2.8 percent each. Fed chairman Jerome Powell reiterated the Fed’s “determination” to contain inflation. Inflation is also putting a heavy strain on US President Joe Biden. Given voter dissatisfaction in the November elections to Congress, Democrats must fear bitter defeats.

“Clear signal of stability”

“The 75 basis point increase in interest rates is a clear signal that, after a long period of hesitation, the bank is vigorously pursuing its stability goal and will not repeat the political mistakes of the 1970s.” – commented economist Michael Heise of the HQ Trust. The economy should be expected to weaken significantly. However, a strong recession will be prevented by large backlogs in industrial orders and strong demand after the crown in the services sector.

Financial markets relatively relaxed

In the financial markets such an extraordinary step was expected in the face of the recently surprising increase in inflation in the US to 8.6%. The markets reacted to the decision with sufficient composure. Following an initial negative reaction, the leading US Dow Jones index returned to positive territory.

The ECB is also raising interest rates

Due to high inflation, central banks around the world are under pressure to tighten loose monetary policy. After much hesitation, the European Central Bank (ECB) also recently decided to end the purchase of multi-billion bonds on July 1. “The decision was adopted unanimously,” said ECB President Christine Lagarde.

At the next regular ECB Council meeting on July 21, the ECB intends to raise key interest rates again for the first time in eleven years, initially by 0.25 percentage points each time. European monetary regulators are likely to pick up the pace in September – even more than in July if inflation remains high. The condition for this is that internal forecasts predict an inflation rate of 2.1% in 2024. or higher.

The US Federal Reserve raises interest rates

Reinhard Baumgarten, ARD Washington, June 15, 2022 21:13

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