Friday, December 02, 2022

USA: Fed raises interest rates, dollar rises against franc


US central bank raises key interest rate by half a percentage point – this affects the US dollar as well

The Federal Reserve continues its policy and tightens US monetary policy. Exporters and tourists are feeling its impact.

Us Federal Reserve Chief Jerome Powell.

US Federal Reserve chief Jerome Powell.

Agency / Anadolu

US currency regulators continue to tighten interest rates. On Wednesday, the Fed’s FOMC announced a half percent hike in interest rates. The decision was unanimous and expected by market observers. The move away from the zero interest rate policy of the covid years is finally over. The prime interest rate is now in the target range of 0.75 per cent to 1 per cent. US officials reacted enthusiastically to the decision.

Fed Chair Jerome Powell justified the decision with still high inflation and strong job growth. In addition to human suffering, the Russian invasion of Ukraine is also causing economic problems. However, it is still difficult to assess the impact on growth in the world’s largest economy, Powell said. The Federal Reserve still aims to bring inflation down to about 2 percent. As the Fed chief acknowledged on Wednesday, monetary authorities are still far from it. The increase in consumer prices over the past twelve months is currently 8.5 percent. “We don’t know,” Powell said recently, whether this figure represents the peak of the current crisis.

Fed monitors inflation “very closely”

Experts accuse the Federal Reserve of ignoring inflation for too long. The central bank stuck to its support buyout last year, even when indicators were already pointing to a strong rise in consumer prices. Powell claims to have learned the right lesson from this omission; Now the monetary watchdog was following inflation “very closely”. Powell seeks to use all means to completely halt economic growth and lead to a recession – as was the case, for example, in the early 1980s, when the prime interest rate was lowered and was extended to more. That’s a 22 percent increase compared to then-Fed Chairman Paul Volcker.

However, the slowdown in economic growth cannot be stopped completely, that too due to the ongoing difficulties in the supply chain. In addition, the dollar has gained significantly in recent weeks against the euro or the Swiss franc. This makes US exports more expensive. In addition, business with foreign tourists may suffer a strong dollar as summer or autumn holidays in the US suddenly become much more expensive for Europeans. Meanwhile, the dollar has gained 6% against the Swiss franc since the beginning of April. The dollar gained about 4 per cent against the euro.

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