The US central bank raises interest rates again, the highest inflation since the 80s

Yesterday, on July 27, the US Central Bank (FED) decided to raise the interest rate again to tame inflation. .

The reference interest rate is now between 2.25 and 2.50 percent, writes Reuters.

The governor of the bank, Jerome Powell, has said that the United States of America will not give up in the fight against inflation, even if it results in a permanent period of economic weakness and a slowdown in the labor market. The US is experiencing the highest rate of inflation since the 1980s.

Powell does not think the US economy is in recession and noted that the US unemployment rate is the lowest it has been in half a century and that there is solid wage growth.

Inflation in the US is not yet higher than 10 percent, but the current inflation rate of 9.1 percent has prompted the authorities to react by raising interest rates.

This is happening at a sensitive time for the Democrats in power – three months before the congressional elections. According to the latest data, published on July 22, the US had a slow economic growth in the second quarter.

The Federal Reserve on Wednesday enacted its second consecutive 0.75 percentage point interest rate increase as it seeks to tamp down runaway inflation without creating a recession.

In taking the benchmark overnight borrowing rate up to a range of 2.25%-2.5%, the moves in June and July represent the most stringent consecutive action since the Fed began using the overnight funds rate as the principal tool of monetary policy in the early 1990s.

While the fed funds rate most directly impacts what banks charge each other for short-term loans, it feeds into a multitude of consumer products such as adjustable mortgages, auto loans and credit cards. The increase takes the funds rate to its highest level since December 2018.

“As the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases while we assess how our cumulative policy adjustments are affecting the economy and inflation,” Powell said.

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