US interest rates rise third 0.75 percentage points to tackle inflation

US interest rates rise third 0.75 percentage points to tackle inflation

The US central bank has introduced its third major interest rate increase in a row.

The Federal Reserve has once again raised interest rates by 0.75 percentage points in an attempt to curb rising inflation.

The generally expected increase will mean more expensive loans for the likes of mortgage holders and those paying off credit card debt.

US interest rates are now at 3% to 3.25%, up from 2.25% to 2.5% since latest increase at the end of July.

There is only one increase in the central bank’s plan to raise interest rates to 4.4% by the end of 2022 and settle at 4.6% in 2023, it announced on Thursday. Such a rate would be the highest since 2007.

The latest tough stance has been taken in an attempt to contain spiraling inflation, which was more than 9% in the US, the fastest increase in 40 years. The increases are being made as part of an overall plan to reduce inflation to 2%.

“No one knows whether this process will lead to a recession or, if so, how significant that recession will be,” Federal Reserve Chairman Jerome Powell said.

In addition to the interest rate announcement, the US central bank, known as the Fed, outlined economic projections.

Gross domestic product (GDP), a measure of the value created by producing goods and services, was projected by Powell to be 0.2% this year and 1.2% next year, down from previous estimates.

While US unemployment is near a 50-year low, as demand for workers outstrips the number of people taking new jobs, the Fed expected it to rise to 4.4% next year in what Powell described as a “softening of labor market conditions”. . That demand for workers must be reduced, he said.

The U.S. housing market will also have to go through a “correction,” Powell said, to balance supply and demand and return home price growth to a more normal pace. Median home prices have risen nearly 36% since the start of the pandemic, despite rising mortgage costs and falling home sales.

The move is likely to bring financial pain, but the Fed is betting it will be shorter and less intense if it takes tougher action now. Job losses are likely to result as loan repayments become more expensive for businesses and consumers have less disposable cash.

Achieving the desired soft landing is “very challenging,” Powell said.

Interest rates had been at 0% at the beginning of this year, but the Fed has gradually increased the number over five announcements. The low rate was reached during the pandemic when the Fed wanted loans to be cheap for businesses and consumers to stay financially afloat.

Not since the early 1980s has the Fed embarked on such an aggressive monetary tightening campaign.

Before Wednesday’s increase, the Fed had already raised interest rates in June and July by what at the time were increases not seen since 1994.

The Fed is just one of many central banks targeting interest rates as inflationary pressures build the cost of living crises across economies.

On Thursday, the Bank of England is also expected to raise the base rate by 0.75% to 2.5%.

It’s a busy week for central bankers as the People’s Bank of China regulator decided to leave interest rates unchanged and the Bank of Japan is forecast to maintain its negative interest rates.

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