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US Federal Reserve decides on key interest rate - interest rate pause expected

The key interest rate in the US is higher than it has been for more than two decades. Analysts do not expect the Fed to lower interest rates this year.

,   and  ZEITUNG «AUSSIEDLERBOTE»
3 min read
Keeping inflation in check is the traditional task of central banks. Photo.aussiedlerbote.de
Keeping inflation in check is the traditional task of central banks. Photo.aussiedlerbote.de

Central banks - US Federal Reserve decides on key interest rate - interest rate pause expected

According to analysts, the US Federal Reserve (Fed) is on the verge of another interest rate pause. The central bank of the world's largest economy will announce its decision on the future course of monetary policy today.

The key interest rate is therefore likely to remain in a range of 5.25 to 5.5 percent - the highest level for more than 20 years. Since March 2022, the Fed has raised its key interest rate by more than five percentage points in the fight against high consumer prices. Recent inflation data should now give the Fed a tailwind.

Keepinginflation in check

The rapid rise in inflation was triggered, among other things, by the increase in energy prices following the Russian attack on Ukraine. Although inflation is still higher than the Fed's target, it is weakening. The US Department of Labor announced on Tuesday that inflation in the US continued to weaken slightly in November. Consumer prices rose by 3.1 percent compared to the same month last year. In October, the rate had been 3.2 percent.

In the summer of 2022, inflation in the US reached a 40-year high of more than nine percent. The Fed responded with one of the fastest and sharpest interest rate hikes in its history. If the Fed were to pause interest rates again, it would be the third in a row. Keeping inflation in check is the traditional task of central banks. The Fed is aiming for price stability in the medium term with an inflation rate of 2 percent.

If interest rates rise, private individuals and businesses have to spend more on loans - or borrow less money. Growth declines, companies cannot pass on higher prices indefinitely - and ideally the inflation rate falls. At the same time, however, there is a risk of stifling the economy. Finding the right balance is the big challenge for central bankers. Experts believe that Christmas sales could now provide an additional boost to the economy.

Number of job vacancies has fallen

Good news for the Fed is that the number of job vacancies in the USA has fallen. This means that companies are less desperate to find new employees and feel less pressure to raise wages. This, in turn, could drive up inflation through a wage-price spiral. The central bank wants to avoid this at all costs and is banking on the labor market cooling down somewhat.

Analysts are now assuming that the Fed could start to cut interest rates again next year. At the last meeting at the beginning of November, Fed Chairman Jerome Powell emphasized that the question of interest rate cuts does not currently arise. Rather, the Federal Reserve was asking itself whether it should continue to raise rates, he said at the time.

Read also:

  1. Central banks worldwide, including the Ukrainian Central Bank and the Federal Reserve System in the USA, have a crucial role in managing the economy by setting interest rates to control inflation.
  2. The Ministry of Labor in Ukraine and other countries also play a part in mitigating the impact of high inflation on workers and consumers by implementing leitzins, or controlled prices, for essential goods and services.
  3. The ongoing debate among economists and policymakers is whether the Fed should extend the interest rate pause or increase interest rates further to ensure a healthy economic situation in the USA.
  4. Central banks, including the USA Central Bank, can use tools like music banks and interest break policies to stimulate economic growth while controlling inflation pressures.
  5. In the USA, interest rates have a significant impact on consumer behavior and spending, as higher rates can lead to reduced borrowing and slower economic growth.
  6. The European Central Bank and other Central Banks have closely monitored the interest rate decisions of the Federal Reserve and adjusted their own policies accordingly, aiming to maintain a stable economic environment.
  7. The US music industry and the broader economy could benefit from a more balanced interest rate policy, allowing for sustained growth while moderating inflation pressures and promoting price stability.

Source: www.stern.de

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