US Federal Reserve increases interest rates to highest level in 15 years

US Federal Reserve increases interest rates to highest level in 15 years
Credit: Wikimedia Commons

The US Federal Reserve has hiked interest rates to their highest level in 15 years, and suggested that further increases should be expected in the coming months.

On Wednesday, the Fed announced that it would raise its benchmark rate by 50 basis points (or 0.5%) to a range of 4.25% to 4.5%. Its members also projected a so-called 'terminal rate' — or rate at which the Fed expects to end its rate hikes — of 5.1%, and forecast that no rate decreases should be expected until 2024.

The most recent hike — the Fed's seventh overall this year — represents a slight slowdown compared to previous rate increases, the previous four of which were set at 75 basis points.

The Fed suggested that the slowdown is due to the fact that inflation, though still at near-record levels in the US and indeed across much of the Western world, has been decreasing in recent months: year-over-year inflation in the US fell to 7.1% in November, down from 7.7% in October and 9.1% in June.

"The inflation data in October and November show a welcome reduction," Fed Chair Jerome Powell said at a press conference on Wednesday. "But it will take substantially more evidence to give confidence that inflation is on a sustained downward path." He added that the current inflation rate is still more than three times the Fed's target rate of 2%.

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Responding to concerns that that continued rate increases could trigger a US and potentially even global recession, Powell claimed that such a fact is "impossible to know" but implied that restoring price stability will not be "completely painless."

"I don’t think anyone knows whether we're going to have a recession or not, and if we do, whether it's going to be a deep one or not," he said. "I wish there were a completely painless way to restore price stability. There isn't. This is the best we can do."

Both the Bank of England and the European Central Bank are expected to announce similar rate increases in the coming days.

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