This year, the central bank has raised interest rates the most since 1981.
As expected, the US central bank Fed raised its key interest rate on Wednesday. The key interest rate was raised by 0.75 percentage points, which means that the interest rate is now between 2.25 and 2.5 percentage points.
The Fed has already raised the key interest rate four times this year and estimates that it will be raised even more. The increases have increased over the year, as the key interest rates were raised by 0.25 percentage points in March and by 0.5 percentage points in May.
The Fed’s goal is to reduce inflation to around two percent. However, interest rate hikes slow down economic growth and may push the US economy into recession.
The stock market reacted positively to the increase in the policy rate. For example, the Dow Jones and Nasdaq indexes rose after the announcement of the news.
The most violent inflation in decades
Consumer prices in the United States rose by 9.1 percent in June compared to a year ago. The increase from the previous month was 1.3 percentage points.
The last time the increase in consumer prices was as strong in the United States was more than 40 years ago, in November 1981.
Half of the monthly increase is due to energy prices. The price of gasoline in the United States rose by 11.2 percent last month, and the increase compared to a year ago is almost 60 percent. In total, the annual increase in energy prices has last been as large in April 1980.
– Inflation is at a much too high level, the head of the Fed Jerome Powell stated at the press conference.
However, according to him, the United States is not in recession, and recession can be avoided by aggressively fighting inflation.
More financial figures this week
This week, the United States is also supposed to announce the economic growth figures for April-June. In the first quarter of the year, the country’s gross domestic product shrank by 1.6 percent.
Most economists have estimated that economic growth in the second quarter of the year will be modest, but some economists have even predicted a contraction of economic growth.
If the economy contracts for two quarters in a row, the economy is generally considered to be in recession, although this is not an official criterion for recession.