Monetary Policy | The key interest rate in the United States will be raised significantly this year, say the members of the committee that decides on monetary policy

Better-than-expected inflation figures published in the US on Wednesday were a relief to the market, but according to members of the Open Market Committee, which decides on monetary policy, the key interest rate will still be raised briskly this year.

of the United States the central bank Fed still intends to continue raising the key interest rate, even though based on the figures published on Wednesday, the country’s worst inflation spike seems to have subsided.

“The Fed is very, very far from declaring victory against inflation,” said the head of the Minneapolis Regional Central Bank Neel Kashkari news agency Reuters at the conference in Aspen, Colorado.

Kashkari said the fresh inflation numbers are welcome, but he has seen nothing that would change the need to raise the key rate to 3.9 percent by the end of the year and 4.4 percent by the end of 2023.

Read more: Inflation slowed to 8.5 percent in the United States in July – stock indexes shot up vertically

Bridge at the moment, the key interest rate is in the range of 2.25–2.50 percent. The central bank has raised the key interest rate four times this year. The key interest rate was raised by 0.75 percentage points in July and by the same amount in June.

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In May, the interest rate was raised by 0.50 percentage points and in March by 0.25 percentage points.

The one-off increases in the interest rate have been exceptionally large. Before June, the last time the central bank raised the key interest rate by 0.75 percentage points was in 1994. Even the 0.50 percentage point increase in May was rare, as the last time the central bank had tightened monetary policy so much in one go was in 2000.

Kashkari is one of the members of the open market committee that decides on monetary policy. This year, however, he is not in the voting turn, although he participates in the committee meetings.

The Open Market Committee consists of seven members of the central bank’s executive board and the governors of regional central banks, five of whom are voting at any one time.

Director of San Francisco Regional Central Bank Mary Daly — who is also not on the ballot — told the Financial Times, according to Reuters, that a 0.50 percentage point rate hike is his starting point at the next meeting of the Open Market Committee in September, but a third straight hike of 0.75 percentage point is not out of the question.

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President of the Chicago Regional Central Bank Charles Evans said, according to Reuters, that he still considers the rate of inflation to be far too fast. According to Evans, the central bank will likely have to raise the key interest rate to a range of 3.25-3.5 percent this year and to a range of 3.75-4.0 percent by the end of next year. Evansa is also not on the ballot this year.

On the market expectations for the September meeting of the Open Market Committee changed with Wednesday’s inflation figures.

Before the publication of the figures, market expectations in September considered a third consecutive increase of 0.75 percentage points the most likely, but after the publication of the figures, an increase of 0.50 percentage points is considered the most likely.

Open Market Committee usually meets eight times a year. If necessary, it can also meet outside of pre-planned meetings. The Open Market Committee met outside of the planned times, for example in the spring of 2020 due to the coronavirus pandemic.

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This year, the open market committee has scheduled meetings in September, November and December.

By adjusting the key interest rate, the central bank tries to curb inflation, which has accelerated to a very high rate. According to the central bank’s price stability goal, inflation, i.e. the increase in consumer prices, should average two percent over a long period of time. In July, the US inflation rate was 8.5 percent.

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