- The benchmark interest rate was raised by 0.75 percentage points, according to the Federal Reserve.
- The bank anticipates that raising borrowing costs will slow down economic growth.
- Some areas of the economy, like housing, have already begun to slow down as a result of the increase in borrowing costs.
In an effort to slow the rate of rapidly increasing prices, the US central bank has approved yet another steep increase in interest rates.
The benchmark interest rate was raised by 0.75 percentage points, according to the Federal Reserve, reaching its highest level since early 2008.
The bank anticipates that raising borrowing costs will slow down economic growth and reduce price inflation.
However, many are concerned that the actions could start a major decline.
The bank’s benchmark lending rate has now increased to a range of 3.75% to 4%, which is the highest level since January 2008.
As they struggle with their own inflation issues, several other nations are following the US in raising borrowing prices.
The Bank of England in the UK began raising interest rates last year but has so far chosen to raise rates less frequently than the Fed. The greatest such change since 1989 is anticipated to be announced by the Bank of England on Thursday: a 0.75 percentage point increase.
Some areas of the economy, like housing, have already begun to slow down as a result of the substantial increase in borrowing costs.
However, experts assert that further economic contraction is required if inflation is to revert to the 2% level regarded as healthy.
“There is always the hope of painless, immaculate disinflation,” said economist Willem Buiter, a former member of the Monetary Policy Committee of the Bank of England who is now an independent economic advisor. “Unfortunately there are very few historical episodes that fit that picture”.
“This is not going to be a pleasant year,” he added.
Since March, the Fed has been increasing interest rates, driving up borrowing costs at the quickest rate in decades.
Jerome Powell, the head of the Federal Reserve, issued a warning that rates were likely to rise once more.
“We still have some ways to go and incoming data since our last meeting suggest that the ultimate level of interest rates will be higher than previously expected,” he said at a press conference following the announcement.
“We will stay the course until the job is done,” Mr. Powell added.
Inflation, which measures how quickly prices grow, dropped to 8.2% in the US last month after peaking at 9.1% in June, the highest level since 1981.
The cost of groceries, medical expenses, and many other things are still going up, despite the fact that a fall in energy costs has helped to lessen the pressures.
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