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US interest rates see fourth hike of 0.75 percentage point to fight inflation | Economic news

The US central bank imposed its fourth major interest rate hike in a row.

The Federal Reserve, the central bank known as the Fed, rose again rates by 0.75 percentage point in order to curb the surge in inflation.

The widely expected rise will mean more expensive borrowing for mortgage holders and those paying off credit card debt.

US interest rates are currently at 3.75% to 4% versus 3% to 3.25% since the last increase in September.

The last firm stance was taken with the aim of limiting the spiral of inflation, which amounted to more than 8.2% in the United States within 12 months to September. These increases are part of an overall plan to reduce inflation to 2%.

There must be no slacking off in pursuit of that goal as the committee that decides US interest rates said it expected “continued increases” in rates would be appropriate “for some time to come”.

The Fed has taken responsibility for inflation, speaking at the announcement, Fed Chairman Jay Powell said price stability is the responsibility of his organization and the foundation of the economy. “Without price stability, the economy doesn’t work for anyone,” he said.

How high those rates reach remains to be seen. Mr Powell added that there was “significant uncertainty” around the level of rate hikes, but rates were expected to be higher than expected.

What will determine the extent of interest rate hikes are readings on public health, labor market conditions, inflation, and financial and international developments.

The longer the current high inflation rate continues, the more likely inflation expectations are to hold, Powell added.

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Now is not the time to wonder when interest hikes might moderate, he said, continued rate hikes are needed to reach a “sufficiently restrictive” level.

The impact of these rate hikes is already having a negative effect on the economy, economists said.

“A Fed-induced recession is still a very real — and dangerous — possibility,” said Rakeen Mabud, chief economist and managing director of policy and research at the Groundwork Collaborative.

“The housing market downturn is the canary in the coal mine – a warning of the real price we will all pay if President Powell continues to bend interest rates.”

If rates continue to rise, a recession worse than that which followed the global financial crisis could result, the United Nations Conference on Trade and Development (UNCTAD) warned.

The rate was 0% at the start of this year, but the Fed has gradually increased the figure through five announcements. The low rate was hit during the pandemic when the Fed wanted borrowing cheap to keep businesses and consumers financially afloat.

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Not since the early 1980s has the Fed embarked on such an aggressive monetary tightening campaign, with Powell describing on Wednesday that the bulls are rising at a “historically rapid rate”.

Prior to Wednesday’s increase, the Fed had already raised rates in September, June and July by what were, at the time, hikes not seen since 1994.

The Fed is just one of many central banks targeting interest rates as inflationary pressures Cost of life crises across economies.

Thursday, the bank of england should also increase its base interest rate from 0.75% to 3%.

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