USA: The Federal Reserve raises the key interest rate again by 0.75 points



The US Federal Reserve remains on course and announces another rate hike of 0.75 percentage points

The Federal Reserve continues to tighten interest rates and raises the base rate to 2.5 percent. The US Federal Reserve wants to combat high inflation without risking a recession.

Fighting high inflation is his number one goal: Jerome Powell, Fed chairman and custodian of the US dollar.

Manuel Balce Ceneta/TBEN

The high-speed course correction continues. The US Federal Reserve raised the key interest rate again by 0.75 points on Wednesday, to a target range of 2.25 to 2.5 percent. The decision of the Federal Reserve’s monetary policy committee was unanimous.

With this move, which did not surprise observers, the guardians of the dollar want to curb high inflation, which rose to 9.1 percent last month. Fed Chair Jerome Powell said after the meeting that the most important goal is still to dampen inflation to 2 percent “in the longer term”. In view of the high energy prices and the sharp rise in food costs, however, this goal will probably not be achievable in the short term.

At the same time, Powell wants to prevent the economy in the world’s largest economy from tumbling into a recession. Powell acknowledged that the current outlook is not too good, partly because “Russia’s war against Ukraine would create extraordinary human and economic hardship”. However, one of the tasks of the Federal Reserve is to guarantee full employment and to stabilize the current unemployment rate of 3.6 percent. And the monetary watchdogs are sticking to this goal, said Powell, even if a certain cooling off of the labor market cannot be prevented.

Biden claims: ‘We won’t be in a recession’

This news will please the White House. President Joe Biden wants to use all means to prevent the economy from shrinking in the 2022 election year, although the signs are bad. The Democrat has therefore been forced to be optimistic for weeks. So this week Biden made the unrealistic promise: “We will not be in a recession.”

The fact is that his government will give a first look at the economic data for the second quarter of 2022 on Thursday. And that these data are eagerly awaited by the experts – because even economists cannot currently say what the state of the US economy is.

The economists at JP Morgan Chase forecast that the economy grew by 1.4 percent from April to June, extrapolated for the year as a whole. In contrast, the Fed branch in Atlanta (Georgia) assumes that the economy has shrunk by 1.2 percent over the same period (projected for the full year). Powell, in turn, said at a press conference on Wednesday: “I don’t think the US economy is currently in a recession.”