The US Federal Reserve has announced that it will raise key interest rates by half a percentage point in 2000, as part of an effort to control the country’s highest inflation rate in four centuries. Its chairman, Jerome Powell, stressed that the US economy is still strong despite the slowdown in growth.
Following a quarter-point increase in March, the Federal Reserve decided to raise rates between 0.75% and 1%, indicating other increases, a step within the framework of tightening its policy to calm the economy. According to the Monetary Policy Committee, it would be appropriate.
The group also noted the “uncertainty” of external factors, including the Russian invasion of Ukraine, which “puts additional pressure on inflation and affects economic activity.”
In addition, the report clarified that Govt-related strikes in China are “likely to exacerbate supply chain disruptions”.
Last March, the US Federal Reserve began cautiously raising these rates by 0.25 percentage points, the first time since 2018. It also indicated that it would like to approve six more increases this year, during six meetings by the end of 2022. .
Since then, inflation has continued to rise, rising due to the war in Ukraine, reaching an all-time high in March after December 1981: 8.5% US standard a year, according to the CPI index approved by the central bank.
Federal Reserve Chairman Jerome Powell said on Wednesday that the US Federal Reserve would soon take action to raise interest rates to curb rising inflation.
He stressed that despite the slowdown in growth, the US economy is still strong.
“It’s a strong economy,” Powell told a news conference. There is no indication that it is near or at risk of stagnation, ”he said, referring to the possibility of accepting other increases.
On one side of the International Monetary Fund meeting he declared before the central bank governors that it was “absolutely necessary” to stabilize prices and “quickly” raise interest rates.
The US Federal Reserve has two main functions: to ensure price stability and to eliminate unemployment.
In March, Jerome Powell assessed the labor market as “unhealthy”.
The unemployment rate is close to its pre-epidemic level (3.6% in March and 3.5% in February 2020). But companies have been facing a shortage of people for months and mass resignations every month.
In order to attract job seekers and retain employees, companies increase wages, which leads to increased inflation.
Stagnation ghost
In addition to raising key interest rates, the Federal Reserve announced on June 1 that it would begin slashing its asset purchase policy.
This means that the central bank will not repurchase the bonds and allow the bonds to be paid, which will lead to an automatic reduction in the annual final account.
The international environment has changed since March. The US Federal Reserve said in a statement that “general economic activity has slowed slightly in the first quarter.” The country’s gross domestic product (GDP) fell 1.4 percent in the first quarter.
But he also noted that “sustainable investment in housing and businesses is high.”
“The creation of new jobs has been steady in recent months, and the unemployment rate has dropped significantly,” the US Federal Reserve said.
For now, economists are optimistic that consumption will continue despite inflation.
So far, central bank officials are still hoping to bring inflation back to their 2% target.
They have already stated that there is no need to raise interest rates above 3% so as not to disrupt demand. They say the rate is considered “neutral” and will not stimulate or slow economic growth.
Most experts now expect another, bold increase of three-quarters of the point in the June meeting, the first since 1994.
According to the Federal Reserve, the group will “focus on inflation risks”.
It is noteworthy that it was unanimously approved to raise the interest rate by half a point.
(AFP)