The US central bank, the Federal Reserve (Fed), is raising its key interest rate again. The chief economist believes that this may be the last increase for this time.
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The US central bank sets the key US interest rate at 0.25 percentage points.
The new interest rate level in the world’s largest economy is now in the range of 5-5.25 percent.
Today’s interest rate increase is the tenth in a row, and follows the previous interest rate increase in March by 0.25 percentage points.
The central bank raised interest rates in large and frequent jumps in an effort to curb soaring price growth. This should happen because higher interest rates discourage activity in the economy, and in the next phase relieve price pressure.
– It could be another price hike
– This may be the last price hike for this time. The Fed is highlighting in particular the uncertainty surrounding the impact of the banking crisis, and it will monitor the overall impact of interest rate increases, said Elisabeth Holweck, chief economist at Sparebank 1, after the rate decision.
Holvik believes that labor market reports in particular will be important to follow in the future.
– I consider them very unsafe, you continue.
The interest rate committee reiterated earlier that it will monitor the information received carefully and assess the implications for monetary policy.
At the same time, they dropped the phrase “further tightening may be appropriate” from previous press releases. Many US media, including The Wall Street Journal, interpret this as a possible pause in raising interest rates.
They also confirm once again that the banking system is “robust and resilient”.
No decision on stopping the interest rate increase
Central Bank Governor Jerome Powell said in the press conference following the decision that there was still a long way to go before inflation fell to 2%.
The central bank will set the pace of future monetary policy decisions based on new data on the economy.
Powell maintains that an interest rate increase could become relevant, if there are economic data to pull this trend. The Fed is willing to do more, if necessary.
– He didn’t make a decision about the break today, says Powell.
Powell also says the outlook for the economy is modest growth, not recession.
The central bank governor says there is an ongoing assessment of whether interest rates are tight enough for the economy.
The Fed is trying to balance the risks of not doing enough against the risk of doing too much, and at the same time many months of economic data are needed to see if their decisions on interest rates are correct.
Uncertainty about banking chaos
In the run-up to that, there was tension over what the central bank governor would say about the banking crisis that has hit the markets in recent months.
On Monday, the news came that the US authorities had shut down First Republic Bank, and that the largest bank in the US, JPMorgan Chase, would pay NOK 113 billion to take over the bank.
First Republic Bank is the second largest bank to fail in the United States, after Washington Mutual which went bankrupt during the 2008 financial crisis.
This is also the third bank collapse in the US since March, when Silicon Valley Bank (SVB) and Signature Bank went bankrupt as a result of customers withdrawing their money too quickly.
There is now great tension about how bank failure will overtake domestic and regional banks in the US in the future.
After the previous interest rate decision in March, Central Bank Governor Powell said that the Fed is ready to use all possible tools to maintain the integrity, integrity and efficiency of the banking system.
Powell also said the Fed will conduct an internal review of how it handled the crisis and will work to ensure it does not happen again.
Growth in the economy is moderate
In the minutes of its previous interest rate meeting, the Fed indicated that the outlook for the economy includes a “moderate recession” starting later this year. The central bank then expects the economy to recover over the next two years.
Several members of the Interest Rate Committee stated that the impact of the banking crisis on economic activity and price growth prompted them to lower their interest rate estimates.
After the latest interest rate meeting came the numbers showing that economic activity was weaker than expected in the first quarter.
Growth eased to 1.1 percent in the first quarter of the year, down from 2.6 percent in the fourth quarter. In advance, it was expected to drop to 1.9 percent.
The decline was mainly due to lower investment, and was only partially offset by higher consumption and higher exports.
Inflation is still high
Personal consumption expenditures (PCE) inflation, the central bank’s preferred measure of price growth in the US, eased to 4.2 percent in March, down from 5 percent in February.
Core personal consumption expenditures inflation, which excludes food and energy prices, was 4.6 percent.
At the same time, wage growth in the United States was 1.2 percent in the first quarter, up from 1.0 percent in the fourth quarter.
The US central bank’s goal is to keep price inflation stable at around 2% over time.
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