Fed holds firm as US inflation eases: Central bank keeps rate at 5% – 5.25% after 10 consecutive hikes since March 2022
The Federal Reserve left interest rates unchanged in the US last night for the first time since it began an aggressive round of rate hikes last year.
The central bank kept its reference rate between 5 percent and 5.25 percent after ten consecutive increases since March 2022.
But in a sign that rates have not yet peaked, officials suggested two more hikes before the end of the year.
While further interest rate hikes are therefore likely in the coming months, this move reflected the fact that inflation in the US has fallen to 4 percent.
Rate cut: The US Federal Reserve (pictured) kept its benchmark interest rate between 5% and 5.25% after ten consecutive hikes since March 2022
That’s still double the 2 percent target, but represents significant progress after inflation peaked at 9.1 percent in June last year.
By contrast, inflation in the UK is still at 8.7 percent after peaking at 11.1 percent last year.
So while the Fed was able to leave rates unchanged last night, the Bank of England looks likely to continue with further hikes next week.
The Bank has already raised interest rates from 0.1 percent to 4.5 percent since December 2021 and is expected to raise them to 4.75 percent next week.
It is feared interest rates could hit 6 percent by the end of the year, driving up mortgage costs for millions of borrowers.
With investors betting on further rate hikes in the UK, the pound rose to a 14-month high against the dollar, close to $1.27.
Sterling also rose above €1.17 against the single currency for the first time since August last year.
Official figures released yesterday showed that the British economy grew by 0.2 percent in April, after recovering from the downturn in March.
Against that backdrop, Chancellor Jeremy Hunt warned the bank has “no alternative” but to raise rates again to curb runaway inflation.