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Biggest Interest Rate Hike Since 1994: The US Federal Reserve has drastically raised the key interest rate

Status: 15/06/2022 20:18

To combat the high rate of inflation, the US Federal Reserve drastically raised its benchmark interest rate by 0.75 percentage points. It is now between 1.5 and 1.75 percent, as announced by the Fed. It is the biggest jump since 1994.

In the fight against high inflation, the US Federal Reserve has raised the key interest rate more than it has since 1994. It has approved a 0.75 percentage point increase to the new 1.5 to 1.5 percentage point range. 1.75 percent. The Fed announced its third rate hike this year.

Monetary watchdogs have reported that they will make many more hikes this year to keep inflation in check. They aim for an average interest rate level of 3.4 percent by the end of the year. In March they had forecast a value of 1.9 percent. In the long run, the target is an interest rate level of 2.5 percent.

Monetary policy makers also raised their inflation forecasts. Despite projected interest rate hikes, the inflation rate is expected to reach an average of 5.2 percent in 2022, an increase of 0.9 percentage points from the previous forecast in March. Over the next two years, the rate is therefore expected to decline to 2.7 and 2.3 per cent respectively, thus approaching the target value of 2.0 per cent. For the current year, currency controls now predict economic growth of only 1.7 percent, up from 2.8 percent previously.

“Clear signal of stability”

“The 75 basis point increase in interest rates is a clear signal that the bank is now vigorously pursuing its stability goal after a long period of hesitation and will not repeat the policy mistakes of the 1970s,” commented the economist Michael Heise of HQ Trust. A significant weakening of the economy is expected. However, a strong recession will be prevented by high backlogs in the industry and strong post-crown demand in the services sector.

Financial markets are relatively relaxed

Financial markets were expecting a pace of this unusual magnitude given the recent astonishing rise in the US inflation rate to 8.6 percent. The markets reacted to the decision with due composure. After an initial bearish reaction, the main US index, the Dow Jones, moved up into positive territory.

The ECB is also raising interest rates

Due to high inflation, central banks around the world are under pressure to tighten their accommodative monetary policy. After much hesitation, the European Central Bank (ECB) also recently decided to end its multi-billion dollar bond purchases on 1 July. “The decision was unanimously approved,” said ECB President Christine Lagarde.

At the next regular meeting of the Governing Council on 21 July, the ECB intends to raise interest rates for the first time in eleven years, initially by 0.25 percentage points each time. In September, European currency watchdogs are likely to strengthen their game, even more than in July if inflation remains high. The prerequisite for this is that internal forecasts see the inflation rate in 2024 at 2.1 percent or higher.

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