With a view to the future direction, some central bankers are in principle open to further interest rate hikes, while others are more opposed to additional tightening. This emerges from the minutes of the latest interest rate meeting in early May, which were published in Washington on Wednesday evening.
The bottom line is that many central bankers were in favor of a monetary policy orientation that leaves all options open. The minutes thus confirm the impression of many experts from recent statements by Fed central bankers, which did not reveal a uniform line. The Fed’s next rate meeting is in mid-June. At the moment, what is most likely to be expected on the financial markets is a pause in interest rates. Federal Reserve Chairman Jerome Powell had also hinted at this possibility recently.
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Since March 2022, the central bank has had its monetary policy tightened very clearly and faster than seldom before. Overall, key interest rates were raised by five percentage points. The target rate for central bank money is currently in a range of 5.0 to 5.25 percent. This is the highest level since 2006, i.e. before the severe global financial crisis. With this course, the central bank is fighting against the high inflation, which is mainly the result of the corona pandemic and the Ukraine war.
Because interest rates have risen so sharply in such a short period of time, fears have been circulating that the US economy could slip into recession this year. The political tug-of-war over raising the government debt limit, which has brought the world’s largest economy to the brink of insolvency, also harbors great danger. At the most recent meeting, some central bankers openly addressed the risk that the debt limit would not be raised in time. According to the transcript, this could lead to significant upheavals on the financial markets.
The Fed is also uncomfortable with the fact that high inflation is only slowly declining. On the other hand, up until a few weeks ago, the US economy was still suffering from the turbulence in the country’s banking sector. Several specialist and regional banks got into serious difficulties, mainly due to the sharp rise in interest rates. This is one of the reasons why it is currently questionable how great the inclination within the Fed is for even higher key interest rates.
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WASHINGTON (dpa-AFX)
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