High inflation has caused a change in interest rates in the US: The US Federal Reserve (Fed) has raised its key interest rate for the first time since the start of the corona pandemic . The key interest rate for the world’s largest economy rose 0.25 percentage point and is now in the range of 0.25 to 0.5 percent, the central bank announced on Wednesday. The central bank assumes further hikes “will be appropriate.”
The radical change in the Fed’s monetary policy was expected due to the very high rate of inflation that had persisted for months. According to a new central bank forecast, several interest rate hikes are expected this year.
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In December, Fed decision-makers were still assuming on average that the key interest rate would rise to 0.9 percent over the course of the year; now they are 1.9 percent this year and even 2.8 percent next year. The Fed’s balance sheet, which has been inflated as a result of the Corona emergency programs, will soon also be reduced, which would deprive the financial market of liquidity.
Increases in the key interest rate slow demand. This helps reduce the rate of inflation, but it also weakens economic growth. So it’s a balancing act for the central bank: it wants to raise interest rates so high that inflation slows down, without crippling the economy at the same time. (dpa)