2023-12-13 06:34:40
The key interest rate in the USA is higher than it has been in more than two decades. Analysts do not expect the Fed to cut interest rates this year.
This means that the key interest rate is likely to remain in a range of 5.25 to 5.5 percent – the highest level in 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. The latest inflation data should now give the Fed a tailwind.
Keep inflation in check
The rapid inflation was triggered, among other things, by the rise in energy prices after the Russian attack on Ukraine. Although inflation remains higher than the Fed’s target, it is weakening. The US Department of Labor announced on Tuesday that price 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 was 3.2 percent.
In the summer of 2022, inflation in the USA reached a 40-year high of more than nine percent. The Fed responded with one of the fastest and sharpest periods of interest rate hikes in its history. If the Fed now decides to pause interest rates again, it would be the third in a row. Keeping inflation under control is the classic task of central banks. The Fed aims 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 is slowing, companies cannot pass on higher prices indefinitely – and ideally the inflation rate is falling. At the same time, however, there is a risk of strangling the economy. Finding the right balance is the big challenge for central bankers. Experts assume that the Christmas business could now give the economy an additional boost.
Number of vacancies decreased
Good news for the Fed is that the number of job vacancies in the US has fallen. As a result, companies are less desperate to find new employees and feel less pressure to increase 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 counting on the labor market to cool down somewhat.
Analysts are now assuming that the Fed could start cutting 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. The Federal Reserve is wondering whether it should increase further, he said at the time. (dpa)
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