The US Federal Reserve keeps interest rates unchanged. The Federal Reserve (Fed) announced this on Wednesday. This means interest rates will range from 5.25 to 5.5 percent, the highest level since 2001.
Central banks link interest rates to affect inflation. By raising interest rates, borrowing becomes more expensive and there is less money in circulation. As a result, economic activity slows down and prices rise. The Federal Reserve, like the European Central Bank (ECB) – but unlike other countries – aims for an inflation rate of 2 percent.
The US interest rate decision is in line with most economists’ expectations due to disappointing inflation figures. Inflation fell sharply last year, but has fluctuated above 3 percent since June 2023. Since January, inflation in the US has risen 0.4 percent to 3.5 percent. The market was not surprised after the interest rate announcement: Wall Street indices were flat in the following minutes.
Federal Reserve Chairman Jerome Powell said at a press conference in Washington on Wednesday that it was unlikely the central bank would raise interest rates. This caused great relief on Wall Street. Shortly after the announcement, the most important US stock market indicators rose. Stock prices have been under pressure recently due to investor concerns about the central bank’s interest rate policy.
Central banks have been poised to cut interest rates for months, but that decision has been delayed. In December, central bank officials expected three interest rate cuts in 2024, but stock market traders have now adjusted their expectations to one or two interest rate cuts. The ECB decided to keep interest rates at 4 percent in April, but again hinted that this could change soon.
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