Why is the US Federal Reserve bank currently raising interest rates in USA ?

Aug Fri 2023 04:10:24

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Why is the US Federal Reserve bank currently raising interest rates in USA ?

Kathmandu. The US central bank has raised interest rates to the highest level in 22 years as it fights to stabilize prices in the world's largest economy. The decision lifted the Federal Reserve's influential benchmark rate to a range of 5.25% to 5.5%.

The US Central Bank (Federal Reserve) has raised interest rates for the 10th time in a row to control inflation. The bank has increased the reference interest rate by 0.25 percentage points. Along with this, the US Federal Reserve Bank has set the reference interest rate from a minimum of 5 to a maximum of 5.25 percentage points, according to CNBC. Earlier such interest rate was 4.75 to 5 percent.

This interest rate in the US is the highest since 16 years (August 2007). The benchmark interest rate 16 years ago was also at this point. The bank has also made it clear that the cycle of interest rate hikes is at its final stage. As the Federal Open Market Committee raised the benchmark interest rate, interest rates on all other types of debt in the US automatically increased.

Federal Reserve Bank President Jerome Powell has made it clear that the need to cut interest rates will not be immediate. He has said, "We are of the opinion that inflation cannot be brought to the target limit immediately, so it will not be appropriate to cut the interest rate immediately." However, he said that the cycle of interest rate increase is in the final stage.

The central bank aims to bring down inflation (price increase) which is currently around 5 percent to 2 percent. The target is to reduce it to 3.3 percent by the end of 2023. The bank said that the interest rate hike in the initial stage was effective in controlling the price increase, but the positive effect of the interest rate hike in the last months has started to decrease. Powell has responded that although the interest rate hike will have some impact on households and businesses, it is an appropriate step for the overall economy.