Monetary policy US Federal Reserve to start tightening monetary policy and hints at six more rate hikes this year

Of the United States the central bank decided on Wednesday to raise the key interest rate to curb rising consumer prices, or inflation.

The Open Market Committee, which decides on monetary policy, set the key interest rate in the range of 0.25% to 0.50%, which means an increase in interest rates of 0.25 percentage points. The key interest rate was last raised in 2018.

The Open Market Committee also hints that the policy rate may be raised six more times this year as Russia’s invasion of Ukraine further accelerates inflation.

“Russia’s invasion of Ukraine is causing enormous human and economic hardship. The impact on the US economy is highly uncertain, but in the short term, the attack and its aftermath are likely to put additional pressure on inflation and strain economic activity, ”the Open Market Committee said in an opinion.

The decisions and hints were largely unforeseen, they did not cause significant changes in the securities market. However, the decision to raise the key interest rate by 0.25 percentage points was not unanimous. Governor of the St. Louis Regional Central Bank James Bullard supported an increase of 0.50 percentage points.

New the U.S. economy is forecast to grow 2.8 percent this year, which would be significantly less than in the previous forecast. In December, the central bank estimated that the economy would grow by 4.0 per cent this year.

Inflation is forecast to accelerate to 4.3 per cent this year, but to slow to 2.7 per cent next year. In February, the inflation rate accelerated to 7.9 per cent. The last time it was as fast was 40 years ago.

The central bank set the key interest rate in the range of 0–0.25% in March 2020 due to the escalation of the coronary virus pandemic and began large purchases of securities to curb the recession.

European the central bank decided last week to speed up reduction of its securities purchase program.

That could mean the central bank raises its key interest rate in the fall. Inflation rates in the euro area accelerated in February To 5.8 per cent, mainly due to higher energy prices.