The US Federal Reserve kept its key interest rate unchanged on Wednesday. The umbrella organization of central banks has made borrowing more expensive in eleven steps over the past year and a half in the fight against inflation. Policymakers expect another increase in interest rates this year.
The US benchmark interest rate is now at its highest level since 2001, at between 5.25% and 5.5%.
By making borrowing more expensive, the Fed slows demand in the economy. This would ensure that prices do not rise so quickly. The danger is that the US economy may end up in recession due to falling demand.
But the Fed’s new forecasts show that 19 policymakers are actually becoming more optimistic about the economic outlook. Therefore, they are counting on stronger economic growth in the coming years compared to the past. At the same time, they expect unemployment to be lower than they previously thought.
This gives the Fed more room to reduce inflation, which remains well above the desired 2 percent. New forecasts published by the umbrella organization of central banks show that the vast majority of Federal Reserve policymakers support another increase in interest rates this year. They also expect interest rates to be cut less quickly next year than previously expected.
The pause in the series of interest rate hikes did not come as a huge surprise. In financial markets, attention is mainly focused on the explanation that Federal Reserve Chairman Jerome Powell will give later Wednesday evening regarding the interest rate decision. It may provide hints about future interest rate policy in the United States.
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