Minutes from the Federal Reserve’s May 3-4 meeting, released last Wednesday, show that policymakers debated the possibility of raising interest rates to levels high enough to deliberately slow economic growth, possibly by means of multiple half-point rate hikes, as the central bank struggles to tame high inflation.
In addition, the policy-setting Federal Open Market Committee said policy may have to move past “neutral” and into “restrictive” territory.
The US central bank is trying to cool the hottest inflation rate in 40 years without tipping the economy into a recession.
At the May meeting, the Fed decided to raise the target range for the federal funds rate by 50 basis points to 0.75 to 1.0 per cent, marking the biggest rate hike since May 2000.
In the meantime, the eurozone’s business activity continued to expand in May despite rising inflation that dampened consumer spending power, and supply bottlenecks that held back expansion in manufacturing, a preliminary survey showed.
The currency bloc’s composite Purchasing Managers Index (PMI), which comprises both the manufacturing and services sectors, came in at 54.9 in May compared to 55.3 expected by economists, and 55.8 in the previous month. Any reading above 50 indicates growth.
The bloc’s services PMI dropped modestly to 56.3 in May compared to 57.5 expected by economists and April’s 57.7. The indicator registered a two-month low. On the other hand, the manufacturing PMI reached an 18-month low in May to a level of 54.4, down from 55.5 in April and economists' forecast of 54.9.
Finally, the German economy grew in line with expectations in the first quarter of the year, despite difficult economic conditions caused by the Russian invasion of Ukraine, supply chain issues and pandemic-related lockdowns in key Chinese cities, data showed on Wednesday.
According to a second estimate, Europe’s largest economy grew by 0.2 per cent quarter-on-quarter and by 3.8 per cent year-on-year, adjusted for price and calendar effects, the Federal Statistics Office said. Economists had predicted growth of 0.2 per cent and 3.7 per cent, respectively.
Despite the difficult conditions in the global economy, the German economy started 2022 with slight growth, Destatis president Georg Thiel said in the report.
This report was compiled by Bank of Valletta for general information purposes only.