The US Federal Reserve has refrained from raising interest rates further for the time being. This was expected by experts. However, the monetary authorities reserve the right to take such a step this year.
The US Federal Reserve has not changed its key interest rate. She left the Fed funds rate in the range of 5.25 to 5.5 percent, as she announced in Washington.
In the fight against high inflation, the monetary authorities raised the key interest rate eleven times in 16 months – most recently in July by 0.25 percentage points. In March 2022, the key interest rate was still in a range of 0.0 to 0.25 percent. In August the inflation rate was 3.7 percent, after rising to just over nine percent last year. The Fed is aiming for a rate of two percent.
The cycle is considered one of the fastest and sharpest tightening periods in the history of the central bank. So far, the Fed has taken a break in June alone.
Door open for further interest rate hikes
Observers had widely expected another break in interest rates. However, based on the most recent, robust economic data from the USA, it is controversial whether the interest rate peak has already been reached. Accordingly, the monetary authorities signaled that there could be another increase in interest rates this year to combat rising prices. “We are prepared to raise interest rates further if necessary,” said Fed Chairman Jerome Powell in the press conference following the interest rate decision.
In addition, the monetary politicians around Powell now assume on average that interest rates will only fall to 5.1 percent by the end of 2024. In June they had estimated a value of 4.6 percent.
Growth forecast clearly increased
The central bank’s current inflation and economic forecast also makes a further interest rate hike more likely. The monetary authorities now assume that the annual average inflation rate will be 3.3 percent, which is 0.1 percentage points more than in the forecast from June. At the same time, the Fed significantly increased its growth forecast for US gross domestic product (GDP) from 1.0 to 2.1 percent.