At the end of its monetary policy meeting on Wednesday, the US Federal Reserve (Fed) said it was raising its benchmark interest rate by 0.25 percentage points and signalled plans for further increases in the coming months.
Wednesday’s move was the first increase since 2018 and comes as the economy faces fresh threats caused by the Russian invasion of Ukraine and coronavirus outbreaks in China, which are expected to have widespread global repercussions.
By raising rates, the Fed is hoping to cool demand for goods and services, helping to ease price inflation in the US, which hit a new 40-year high of 7.9 per cent last month.
“The plan is to restore price stability while also maintaining a strong labour market,” Fed Chairman Jerome Powell said.
Separately, the Bank of England also raised interest rates on Thursday, bringing them to their pre-pandemic level, in an effort to curb rapidly accelerating inflation that has been worsened by the war in Ukraine. The central bank raised rates by 0.25 percentage points, the third increase in a row, as it lifted its forecasts for inflation.
But the decision wasn’t unanimous, as policymakers factored in the gloomier outlook for the British economy. While the war has led to higher energy and commodity prices, pushing up the expected peak in inflation, it is also predicted to cut economic growth in Europe, including Britain.
Finally, the US Department of Labour said on Tuesday that the Producer Price Index (PPI) was up by 10 per cent in February from the year before, the most since the current data series began in 2009 and in line with economists’ estimates.
The core rate, which excludes volatile food and energy prices, gained 6.6 per cent year over year, although the monthly advance of 0.2 per cent was well below forecasts.
Producer prices for goods increased at an all-time high, jumping 2.4 per cent from January. Producer prices for services were unchanged. The department noted that nearly 40 per cent of the February increase in goods prices was attributable to a 14.8 per cent rise in gasoline prices.
Prices for diesel fuel, jet fuel and electricity were up as well. Large price gains were also reported for motor vehicles and equipment and dairy products.
This article has been prepared by Bank of Valletta plc general information purposes only.