US Fed Raises Interest Rates: Highest in 22 Years, End of Cheap Loans

(Patria) - The US central bank has raised interest rates to their highest level in 22 years as it battles to stabilize prices in the world's largest economy, the BBC reported.
The decision raised the Federal Reserve's influential benchmark rate to a range of 5.25% to 5.5%. This is the eleventh increase since the beginning of 2022, when the Fed began raising borrowing costs to try to "cool" the economy and curb price inflation.

The Fed offered few firm indications of what it might do next.

"We will go meeting by meeting," Fed Chair Jerome Powell told reporters after the announcement.

Wednesday's decision came ahead of central bank meetings in Europe and Japan. In
the United Kingdom, where inflation was 7.9%, the Bank of England is expected to
raise its key rate at its next meeting from the current 5%. US inflation in June was 3%. This was down from a peak of more than 9% last year, when prices were rising at their fastest pace in four decades.

"We think they are at a point where the Fed funds rate is sufficiently restrictive to slow the
economy, slow activity and allow inflation to come down," said Kathy Bostjancic, chief economist at Nationwide Mutual.

The Fed has already raised rates from near zero in less than 18 months, ending an era
of cheap borrowing that began during the financial crisis. In theory, higher borrowing costs should reduce demand for home loans, business expansion, and other activities, ultimately "cooling" the economy and making it harder for companies to raise prices.

But the US economy has held up better than many expected so far, particularly in the labor market, where jobs continue to open at a strong pace and wages are rising.
Andrew Patterson, a senior economist at Vanguard, said the Fed is concerned about declaring victory prematurely, noting that so-called core inflation, which excludes food and energy prices, remains more than double the Fed's 2% inflation target. He said policymakers have in mind the mistakes made in the 1960s and 1970s, when central bank leaders accepted signs that inflation was easing only for the problem to flare up again.