The US Federal Reserve’s interest rate decision was eagerly awaited. On Wednesday evening, the monetary authorities provided information about the direction of monetary policy.
• Fed does not touch key interest rate
• Interest rate pause due to encouraging signals from the inflation and labor market fronts
• ECB is lagging behind
The US Federal Reserve has left its key interest rate unchanged. Accordingly, the key interest rate remains in a range of 5.25 to 5.5 percent and is therefore at its highest level in 22 years. This was already expected on the market in advance.
Interest rate pauses were preceded by a series of interest rate increases
The Fed had previously raised the key interest rate eleven times in 16 months – the last time the monetary authorities took action in this regard was in July, when it rose by 0.25 percentage points after an interest rate break the previous month. In March 2022, the central bank began the fight against the massive rise in inflation and has since raised the key interest rate by more than five percentage points. One trigger for the rise in consumer prices was a rapid rise in energy prices triggered by the Russian attack on Ukraine.
News from the inflation and labor fronts is positive
Recently, a renewed rise in inflation in the USA increased the pressure on the monetary authorities. Inflation in the US increased in August with a jump in gasoline prices, although underlying price pressures continued to decline. Accordingly, consumer prices rose by 0.6 percent compared to the previous month and were 3.7 (previous month: 3.2) percent above the level of the same month last year.
Positive news for inflation development came from the labor market. The unemployment rate in the USA rose from 3.5 to 3.8 percent in August. The feared price increase caused by a wage-price spiral is likely to have lost its relevance.
ECB is still lagging behind
While the Fed may have already reached the peak of interest rates, its European counterpart, the European Central Bank (ECB), had to set the key interest rate for its part Eurozone most recently raised for the tenth time in a row. This is now 4.5 percent, which is as high as it was last in August 2001.
Editorial staff at finanzen.net with material from dpa (AFX) and Dow Jones Newswires