Fed raises interest rates from 2023, earlier than expected

The Fed, the umbrella organization of US central banks, expects to raise interest rates in two steps by the end of 2023, each by 0.25 percentage points. The Fed just announced this during their policy meeting. The banking umbrella previously expected that there would be no interest rate hike before 2024.

In doing so, the Fed is responding to the current recovery of the US economy and the resulting rise in inflation. The US economy has been hit hard by the coronavirus crisis. According to the Fed, the recovery will take some time, but the central bank is positive about the second half of this year, because more Americans will have been vaccinated by then.

So nothing is being done about the low interest rate (between 0 and 0.25 percent) yet. The Fed will also continue to buy bonds for billions a month for the time being. That will not change until employment has improved and inflation has decreased.

Good for export

Raising interest rates increases the exchange rate of the dollar. An appreciation of the dollar is beneficial for exporting companies in Europe. Their products become cheaper for the Americans and that could lead to more European exports to the United States.

The sharp rise in inflation has recently led investors to worry that the Fed would tighten its policy sooner. But the Fed expects higher inflation to be temporary and set to ease. The central bank’s target is to achieve an average inflation rate of 2 percent per year. Inflation is expected to be 3.4 percent this year.

Fed raises interest rates from 2023, earlier than expected
Source link Fed raises interest rates from 2023, earlier than expected

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