The US Federal Reserve raised interest rates to a 22-year high last night as it stepped up the battle against inflation.
In a closely watched move following last month’s ‘pause’ in the hiking cycle, the central bank put up rates by 0.25 percentage points to a range between 5.25 per cent and 5.5 per cent.
That was the 11th rise in the past 12 meetings of the Fed’s rate-setting committee and took borrowing costs to the highest level since 2001.
Battle: US Federal Reserve chair, Jerome Powell, said inflation has ‘moderated somewhat’
The European Central Bank (ECB) looks set to follow suit with another rate rise in the eurozone today while the Bank of England is likely to press ahead next week.
Central banks around the world have been raising interest rates in a desperate bid to bring runaway inflation back under control, with varying degrees of success.
While inflation has fallen to 3 per cent in the US and 5.5 per cent in the eurozone, it is still at 7.9 per cent in the UK.
With inflation in the US close to the 2 per cent target, analysts believe rates there may be at, or close to, their peak.
However, the Fed last night signalled further hikes could still follow, depending on how the economy develops in the coming weeks and months.
Fed chairman Jerome Powell said inflation has ‘moderated somewhat’ but added there was a ‘long way to go’ to return it to 2 per cent.
James McCann, deputy chief economist at Abrdn, said that the Federal Reserve ‘is still a long way from declaring victory on its fight against inflation’ and had once again signalled that it is ‘still planning to do more’.
But he added: ‘We are sceptical and think today’s move will probably be the last.’
The ECB is widely expected to raise rates from the current rate of 3.5 per cent – a 22-year high – to 3.75 per cent today.
The Bank of England looks set to increase UK rates from 5 per cent to 5.25 per cent next week – though a larger hike to 5.5 per cent cannot be ruled out.
Although the Bank has put up its rates from 0.1 per cent to 5 per cent since December 2021, inflation remains around four times above the 2 per cent target, which is piling pressure on it to do even more.
However, official inflation figures last week showed a bigger drop than expected, dampening expectations of how much further the Bank will go before hitting pause.
The surge in interest rates has pushed up borrowing costs for millions of households in recent months.
But in a sign the worst may be over, HSBC this week became the first major lender to lower mortgage rates following a string of hikes.
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