US Federal Reserve raises interest rates to highest level in 16 years in a bid to stabilize prices. This marks the Federal Reserve’s 10th hike in 14 months, with the benchmark rate now between 5% and 5.25%, up from near-zero in March 2022.
The move has already significantly raised borrowing costs across the US economy, spurring a slowdown in sectors such as housing and playing a role in the recent failures of three US banks.
Federal Reserve Chair, Jerome Powell, has hinted that this latest rise could be the last, noting that the US is “getting close or maybe even there” to pausing its rate-hike campaign, but refused to rule out further action if warranted.
Central banks around the world, including in the UK and in Europe, have also taken similar action, with higher interest rates making it more expensive to buy a home, borrow to expand a business, or take on other debt.
Since the Fed began its campaign, price increases in the US have shown signs of moderating, with inflation, the rate at which prices rise, standing at 5% in March, the lowest level in nearly two years, though still uncomfortably high for the Fed, which is targeting a 2% rate.
Gregory Daco, Chief Economist at EY-Parthenon, thinks the Fed would be “prudent” to pause now, noting that the risks to the economy as activity slows are growing.