The Federal Reserve, the US central bank, raised interest rates less on Wednesday than at the last few interest rate meetings.
The key Fed interest rate increased by 0.25 percentage point to a range of between 4.5 and 4.75 percent. In December, the Fed Board raised interest rates by 0.5 percentage point, and before that by 0.75 percentage point several times.
With the interest rate hikes, which started in March last year, the Fed is trying to reduce inflation in the United States. Interest rate increases make it more expensive to borrow money. This slows down economic activity, and ultimately price increases. US inflation was 6.5 percent in December. This is the lowest level in more than a year, but still three times higher than the Fed’s target of 2 percent.
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At the same time as the interest rate decision, the Fed stated that the US economy is still growing “modestly”, but the labor market is experiencing a “robust increase” in employment. The wording in which the Fed predicts further rate hikes has not changed. “We are fully committed to bringing inflation back to 2 percent,” Fed Chairman Jerome Powell said at a press conference following the decision. “We are not yet at the point where monetary policy is sufficiently restrictive.”
In the financial markets, this was seen as an attempt to dampen the mood on the stock markets. In recent weeks it has been expected that the time for further interest rate hikes will soon come to an end, and the peak in interest rates will be reached in the middle of this year.
Whether Powell’s attempt to contain the enthusiasm succeeded, seemed to be the question on Wednesday evening: the US dollar fell slightly to a value above 1.09 per euro, which is the weakest rate since March last year. Lower than expected interest rates can weaken a currency. The stock indices Dow Jones, S&P 500 and Nasdaq showed a mixed picture after the decision.
Difficult for the Fed is that so-called core inflation, from which energy and food prices are excluded, remains high and is even increasing. This core inflation, which reflects underlying inflationary pressures, was 5.7 percent year on year in December, up from 5.4 percent in November. Services and consumer goods, among other things, continued to become more expensive.