The US Federal Reserve (‘Fed’) did not raise interest rates for the first time in a long time. The central bank has been taking a break to reflect the impact of previous rate hikes in recent times. These have been tumultuous months in the US banking world, where three mid-sized banks went bankrupt in one month.
The bank has already raised interest rates ten times in a row to curb high inflation in the country.
Not surprisingly, increases have now been put on hold for a while. In May, the central bank has already indicated that there will be no hike this month. However, the central bank has hinted that further interest rate hikes could come later this year.
Federal Reserve Chairman Jerome Powell said in May that interest rate hikes are rarely needed in the fight against inflation. In May, it was already lower than many economists had expected. Additionally, banks in the US are already said to be more cautious about lending, so interest rates may not need to be raised to curb demand.
However, despite the pause, markets were not fully reassured on Wednesday evening as it also became clear that the central bank intends to raise rates again later this year. Shortly after the announcement, the S&P 500, an index of the 500 largest publicly traded companies in the US, fell.
The index rebounded slightly after Powell said the central bank would consider the impact of rate hikes on the economy before deciding to raise rates further.
Due to low interest rates and high inflation compared to the US, a break in Europe is not yet in sight. In Europe, interest is now 3.25 percent, while in the US it is 5 to 5.25 percent. Inflation was over 6 percent in Europe and 4 percent in the United States in May.
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