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Jerome Powell, Chairman of the Federal Reserve

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Jacquelyn Martin / dpa

The U.S. Federal Reserve is resorting to another interest rate hike in the fight against inflation. It raised the key interest rate by another 0.25 percentage points. This means that it is now in the range of 5.25 to 5.5 percent, according to the Fed. It is the highest level in 22 years.

The eleventh increase in 16 months had been widely expected. The exciting question now is what happens next. In June, the Fed had taken a break after ten consecutive hikes. At the time, it signaled at least two more hikes this year. Now the Fed pointed out that inflation is still elevated – and at the same time the development on the labor market is robust.

According to media reports, there are different views among the members of the US Federal Reserve Council. Some are in favor of continuing with interest rate hikes. The other group wants to stop the hikes to protect the labor market, wrote the financial service Bloomberg.

The Fed has been steadily raising the key interest rate since March 2022 in the fight against the high rise in consumer prices, in some cases in steps of 0.75 percentage points. The cycle is considered one of the fastest and sharpest tightening periods in Fed history. The rapid inflation had been triggered, among other things, by the rise in energy prices following the Russian attack on Ukraine.

Inflation in the US continued to moderate in June

Keeping inflation in check is the classic task of central banks. If interest rates rise, private individuals and businesses will have to spend more on loans – or borrow less money. Growth is slowing, companies cannot pass on higher prices indefinitely – and ideally the inflation rate will fall. At the same time, however, there is a risk that the economy will be strangled. Finding the right balance is the big challenge for central bankers.

The June data showed that high inflation in the US moderated again and noticeably. Consumer prices rose by 3.0 percent compared to the same month last year. This was the lowest level in just over two years. In the previous month, the rate had been 4.0 percent. Core inflation also fell sharply from 5.3 to 4.8 percent in June. This rate excludes volatile energy and food prices.

czl/dpa