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The US Federal Reserve leaves its key interest rate unchanged at a high level

The US Federal Reserve leaves its key interest rate unchanged at a high level

The US Federal Reserve decided to leave its key interest rate unchanged at a high level for the fourth time in a row. It remains in the range of 5.25 to 5.5 percent, the central bank board announced on Wednesday in Washington. Commercial banks can borrow central bank money at this rate.

It is the highest value in more than two decades. The Fed made it clear that it is not yet ready to cut interest rates. The statement issued by the US Federal Reserve said that one must first gain more confidence that inflation is moving sustainably towards 2 percent. The decision was expected.

Fast to the top

Since March 2022, the Fed has raised its key interest rate by more than five percentage points at a record pace in the fight against inflation — but recently stopped adjusting the interest rate. The rapid inflation was caused, among other things, by rising energy prices after the Russian attack on Ukraine.

With inflation declining, the US Federal Reserve is expected to cut interest rates soon. In December, the annual rate was 3.4 percent. The US Federal Reserve aims to stabilize prices by 2% in the medium term. Keeping inflation under control is the classic task of central banks.

Better than expected

The rapid rise in interest rates by the Federal Reserve has dampened growth in the largest economy. But last fall, the US economy recorded stronger-than-expected growth. In the fourth quarter, GDP rose by 3.3 percent on an annual basis compared to the previous quarter, as the US government announced about a week ago. Experts had expected an average of 2 percent.

Given the strong economic growth, the Fed is unlikely to be in a hurry to cut interest rates. Observers do not expect an interest rate cut until after the next meeting in March at the earliest. So far, it appears that the Fed has been able to slow the rise in prices without slowing the economy completely.

In December, the Fed's own policymakers expected the key interest rate to average 4.6% for the year. That suggests about three interest rate cuts in 2024. Experts assume there could be more.

However, Federal Reserve Chairman Jerome Powell repeatedly urges caution. Low inflation now gives US monetary authorities some leeway. But Powell has repeatedly stressed in the past that the data should be viewed with caution and that we will have to wait and see if the decline is permanent. It is feared that if interest rates are cut too quickly, inflation could rise again.