The last time the key interest rate was raised was 0.50 percentage points at a time 22 years ago.
Of the United States the central bank decided on wednesday to raise its key interest rate by 0.50 percentage points to curb rising consumer prices, or inflation.
The decision is historic, as the last time the key interest rate was raised was 0.50 percentage points in 2000. On Wednesday, the key interest rate was set in the range of 0.75 to 1.00 per cent.
The decision of the Open Market Committee to decide on monetary policy was unanimous and also met the expectations of economists and investors.
“Employment has risen sharply in recent months and the unemployment rate has fallen sharply. Inflation remains high, reflecting the imbalance between supply and demand caused by the pandemic, higher energy prices and wider price pressures, ”the Open Market Committee said in an opinion.
Ultimate the reason for the exceptionally strong tightening of monetary policy is the persistent rise in inflation.
Inflation accelerated in the United States to 8.5 per cent in March, the strongest in more than 40 years. The central bank began tightening monetary policy as early as March, when the key interest rate was raised by 0.25 percentage points. At that time, it also anticipates that this year the policy rate will be raised six more times.
According to the central bank’s target, the inflation rate should average 2% over the long term. In the United States, it has been more than two percent since March 2021.
The war of aggression launched by Russia in Ukraine has further accelerated the rise in energy prices since the end of February, and at the same time the acceleration in inflation has become more widespread and permanent. Prolonged disruptions in international supply chains have also boosted inflation.
“Russia’s invasion of Ukraine is causing enormous human and economic hardship. The impact on the US economy is very uncertain. The attack and its consequences will put additional pressure on inflation and are likely to strain economic activity. In addition, restrictions on the coronavirus pandemic in China are likely to exacerbate supply chain disruptions, ”the Open Market Committee said.
Inflation as a result, the purchasing power of money weakens because a certain amount of money allows fewer goods and services to be purchased than before. In addition to wage earners, high inflation is detrimental to companies and investors.
The central bank set the key interest rate in the range of 0–0.25 per cent in the spring of 2020, when the coronary virus pandemic intensified. At the same time, it restarted the purchase of federal bonds and mortgage-backed securities from the market to increase the money supply and prevent financial damage.
Purchases were discontinued at the beginning of the year and on Wednesday the central bank announced the opposite decision: it will start shrinking its balance sheet, i.e. selling securities.
From the beginning of June, federal bonds will be sold for up to $ 30 billion a month and from the beginning of September for up to $ 60 billion.
It has been selling $ 17.5 billion a month in mortgage-backed securities since the beginning of June and $ 35 billion since the beginning of September.
International International Monetary Fund (IMF) assesses in its business cycle report inflation will accelerate to 7.4 per cent in the United States this year but slow to 2.9 per cent next year. The IMF forecasts that GDP will grow by 3.7 per cent this year and by 2.3 per cent next year.
#Monetary #policy #Federal #Reserve #exceptional #decision #raise #interest #rates #percentage #points
