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Monday, Aug 15, 2022

US interest rates see second 0.75 point rise to tackle inflation

US interest rates see second 0.75 point rise to tackle inflation

The Federal Reserve said it expects that "ongoing increases" will be needed despite evidence of a slowing economy.
The US central bank has raised interest rates by 0.75 percentage points for the second time in a row in an attempt to curb soaring inflation.

The US Federal Reserve said it expects that "ongoing increases" will be needed despite evidence of a slowing economy and concerns that aggressive hikes could lead to a recession.

After four increases this year, the benchmark rate now stands at a range of 2.25% to 2.5%, levels that have not been seen since 2018.

This will make it costlier for people, businesses and governments to borrow - affecting credit card and mortgage payments.

The Fed's last hike was the sharpest since 1994 and reflects efforts to control inflation, which has risen to 9.1% in the past year - the fastest increase in 40 years.

Officials said that while job gains have remained "robust" and unemployment is low, recent indicators of spending and production have "softened", suggesting that rate hikes are starting to bite.

"While another unusually large increase could be appropriate at our next meeting that is a decision that will depend on the data we get between now and then," Fed chair Jerome Powell said.

He also acknowledged that the pace of rate hikes could slow down at some point.

"As the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases while we assess how our cumulative policy adjustments are affecting the economy and inflation," he said.

The Fed has implemented much sharper rate hikes than its UK counterpart, the Bank of England, which has favoured more modest hikes of 0.25 percentage points.

There is speculation that the Bank could change course when it meets next week to decide on the next increase, but a recent poll of economists by Reuters shows that most still think it will shy away from a 0.5 point rise. In the UK, interest rates have reached 1.25%.

Last week the European Central Bank raised rates from -0.5% to 0%.
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