American central bank
The doomsday message from the US central bank
Of: Alexander Bönke
Published: Less than 2 hours ago
Updated: Less than 20 min ago
NEWS
The US central bank, the Federal Reserve, raises the key interest rate by 25 basis points.
But the future is still uncertain.
- We simply do not know, says Fed Chairman Jerome H. Powell.
The US central bank, the Federal Reserve, raises the key interest rate by 25 basis points.
The announcement comes after a two-day meeting where the board of the central bank tried to find the balance between reducing inflation and preventing more banks from collapsing.
Ahead of today's decision, most experts agreed that the bank would settle for a 0.25 percentage point increase, or perhaps not raise at all despite high inflation. This after the recent financial unrest where several large banks, including Silicon Valley Bank, collapsed or had major financial problems.
The expert: Expected announcement
Shoka Åhrman, savings economist at SPP, says that the announcement was expected.
- It was expected, this is what the market has priced in and this is exactly how the Fed intends to act in the future. The playing field has been changed, which means that the Fed does not intend to continue at the high rate it communicated at the beginning of the month. Many expected 50 points, now we got 25. It shows the uncertainty that exists after the recent banking crises.
Unclear how the Riksbank acts
How the Swedish Riksbank will act after today's announcement is still uncertain according to Shoka Åkerman.
- The European Central Bank, which is perhaps closer to the Swedish Riksbank, increased by 50 points. But now the interest rates have been completely changed by the American central bank. I think that the Riksbank will wait and see what new information they will have access to until the new announcement.
But today's announcement clearly shows that the focus is on financial stability rather than fighting inflation.
- It indicates a focus in the short term from combating inflation to calming the financial markets. But we have high inflation in both the US and Sweden, so it remains to be seen, as I said. I think that you reevaluate quite a lot from day to day now, says Shoka Åkerman.
Long and bumpy road
The Chairman of the US Federal Reserve, Jerome H. Powell, says it will take several years before inflation is down to the central bank's target of two percent. Only in 2025 do they expect it to be 2.1 percent.
- The road there is long and it will in all probability be shaky, he said at a press conference.
He went on to say that the US economy is stronger than expected but that recent problems in the banking sector will probably lead to more restrained credit to households and businesses going forward, which in turn will affect the economy.
- It is too early to say exactly how big the effects will be, he said during the press conference.
The plan was bigger increases
According to Jerome H. Powell, the plan was to implement larger increases than first thought during the year due to the continued strong economy. However, recent turmoil in the financial sector made them desist. For a while, it was even discussed whether to completely refrain from raising the interest rate.
- As I said, we believe that recent events will lead to stricter credit for households and companies, which in turn will weigh down the demand for labor and inflation. It has the same effect as raising the interest rate.
If the effect is as expected, it may mean that interest rates do not need to be raised as much in the future, but it is too early to say. You have to wait and see.
- It is impossible to determine now with any precision. As always, we will base it on the incoming data and especially on the effect of reduced credit from the banks. It may be that recent events do not have a major effect on the economy, then things will look different. We simply don't know.
Federal Reserve Chairman Jerome Powell. Photo: Jose Luis Magana/AP
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