US NEWS
When will the Federal Reserve raise interest rates again? By how many points?
The central bank has already mooted likely rate increases in 2023 as its inflation battle threatens curtail workers’ current power in job openings and pay.
As inflation is nowhere near the 2% target set by the Fed it is unlikely that there will be a reduction in the interest rate and a near certainty that it will increase further.
A forecast from the central bank showed that the interest rate could still be at 5% in a year’s time, meaning more increases are likely before they begin to taper off. Currently, inflation stands at 7.1%.
Federal Reserve chair Jerome Powell said, “the inflation data received so far in October and November show a welcome reduction in the pace of price increases, but it will take substantially more evidence to give confidence inflation is on a sustained downward path.”
The next increase could happen as soon as 1 February as this is the next meeting due for the Fed. Anticipate a 0.5 percentage point increase, the same as in December.
With inflation already decreasing the question will soon turn to keeping the level appropriate for keeping inflation down and forcing workers out of jobs without crashing the economy. The Fed is thought to not be best please with the continuing tight labour market, meaning workers have the ability to push for higher wages and have greater freedom in choosing jobs.
“It has been easy, and necessary, for the Fed to raise interest rates aggressively in 2022 with interest rates starting from zero, unemployment below 4 percent, and inflation at a 40-year high,” says Greg McBride, CFA, Bankrate chief financial analyst. “It gets a lot tougher to raise rates once the economy slows, unemployment rises and inflation remains stubbornly high.”
All of this is contingent on inflation not increasing further which, as shown by the whole of 2022, is impossible to predict.
What happened to interest rates in 2022?
At the last meeting of the Federal Reserve in December 2022, the key interest rate was increased by 0.5 percentage points to a target range of 4.25% to 4.50%, the highest since late 2007 during the banking crisis.
At the beginning of 2022 the interest rate was nearly 0% as the hangover of the covid-19 pandemic encouraged the Fed to decrease interest rates to historic lows