"US central bank raises interest rates for first time since 2018"

" \n US central bank raises interest rates for first time since 2018 \n \n\n \n The US Federal Reserve is raising interest rates for the first time since 2018 in an attempt to bring fast-rising prices under control. \n \n\n \n The US central bank said it was lifting its benchmark rate by 0.25 percentage points and signalled plans for further rate rises in the months head. \n \n\n \n The moves come as the economy faces new uncertainty caused by the Ukraine war and coronavirus outbreaks in China. \n \n\n \n They are expected to have widespread global repercussions. \n \n\n \n By raising rates, the Fed will make it more expensive for households, businesses and governments to borrow. \n \n\n \n It is hoping that will cool demand for goods and services, helping to ease price inflation in the US, which hit a new 40-year high of 7.9% last month. \n \n\n \n \u201cThe plan is to restore price stability while also maintaining a strong labour market,\u201d Federal Reserve Chairman Jerome Powell said. \u201cThat is our intention and we believe we can do that but we have to restore price stability.\u201d \n \n\n \n \u201cWe\u2019re not going to let high inflation become entrenched,\u201d he said. \u201cThe costs of that would be too high.\u201d \n \n\n \n The bank is trying to pull off a \u201chigh-wire act\u201d says Diane Swonk, chief economist at accounting firm Grant Thornton. \n \n\n \n Move too slowly and inflation could become entrenched, eroding living standards over time. Move too fast and the Fed risks knocking growth in the US and abroad. \n \n\n \n \u201cThey want to dampen down the pressures of inflation without derailing the global economy,\u201d she says. \n \n\n \n Fed policy shift \n \n\n \n The plans represent a seismic shift in policy from the bank overseeing the world\u2019s largest economy. The Fed moved cautiously to raise interest rates after the financial crisis of 2008 and slashed them again when the coronavirus pandemic hit. \n \n\n \n Image caption,Oil prices skyrocketed following the invasion of Ukraine \n \n\n \n The rate increase announced on Wednesday was expected and will push the target range for the bank\u2019s key rates to 0.25% to 0.5%. \n \n\n \n Projections released after the Fed\u2019s meeting show officials also expect the interest rate to rise to almost 2% by the end of the year \u2013 a full percentage point higher than they predicted in December. \n \n\n \n In addition to rate rises, the Fed will also be winding down other stimulus, including massive purchases of Treasury securities and other assets that it started to stabilize markets at the beginning of the coronavirus crisis. \n \n\n \n And while the bank has certainly raised rates before, it has not faced this kind of inflation in decades. \n \n\n \n \u201cIt\u2019s no longer just raising rates to accommodate stronger growth,\u201d Ms Swonk says. \u201cActually chasing inflation as opposed to pre-empting inflation is a very different concept.\u201d \n \n\n \n US growth \n \n\n \n Fed Chairman Jerome Powell said the US economy was well positioned to handle the increases, dismissing fears that it might tip into recession. \n \n\n \n \u201cThe probability of a recession in the next year or so is not particularly elevated,\u201d he said at a press conference following the Fed meeting. \u201cAll signs are that this is a strong economy, one that will be able to flourish, not to say withstand, but certainly flourish as well in the face of less accommodative monetary policy.\u201d \n \n\n \n Bank officials expect the US economy to grow 2.8% this year, and inflation to subside to around 4.3% by the end of the year. \n \n\n \n That is still well above the bank\u2019s 2% target, raising fears the Fed is moving too cautiously. \n \n\n \n In the UK \u2013 where inflation hit 5.5% in January \u2013 the Bank of England has already raised rates twice and is expected to do so again on Thursday. \n \n\n \n Officials in many other countries, including South Africa, Brazil and South Korea, have also acted. \n \n\n \n Emerging market risk \n \n\n \n By holding off, the Fed created a situation with more uncertainty about how far the it will have to raise rates and how quickly to get inflation under control, says Maurice Obstfeld, professor of economics at the University of California, Berkeley. \n \n\n \n That\u2019s a problem \u2013 and not just in the US, he says. \n \n\n \n Image caption,Developing economies are among those vulnerable to shift in Fed policy \n \n\n \n \u201cIf you\u2019re in the UK or a wealthy continental European country, it\u2019s not a terribly big deal,\u201d he says. \n \n\n \n \u201cBut if you\u2019re in a small emerging market where there have been inflationary prices \u2013 which is sort of everywhere outside of Asia \u2013 then I think you do have to worry about the repercussions, because you are entering a situation of greater fragility on international capital markets and you\u2019re on the front line of that.\u201d \n \n\n \n When the US raises interest rates, investors often redirect money from riskier economies, deflating the value of local currencies. \n \n\n \n That also puts pressure on governments \u2013 especially those with large amounts of debt in dollars \u2013 at a time when budgets were already under strain from the Covid crisis. \n \n\n \n Russia\u2019s invasion of Ukraine \u2013 which has disrupted global oil and food markets \u2013 has made the situation even more delicate. \n \n\n \n It\u2019s not the Fed\u2019s job to focus on spill-over effects, says Professor Obstfeld, who is also a fellow at the Peterson Institute for International Economics. \n \n\n \n \u201cThe ultimate factor that is destabilizing or potentially destabilizing for global markets is out-of-control US inflation,\u201d he says. \n \n\n \n Companies have attributed the price increases to higher costs from supply shortages, logistics disruptions and wage increases as they compete for workers in a competitive job market. \n \n\n \n Despite the gains, US demand has remained strong, boosted in part by increased government assistance to households during the pandemic. \n \n\n \n Image caption,Sheilla Thompso has put off going to the doctor because she is worried about how the extra bill \n \n\n \n But the rising cost of basics like food and petrol has still put pressure on President Joe Biden, as inflation outpaces wage gains. \n \n\n \n Sheilla Thompson, a manager at a social services organisation in Brooklyn, says she has put off going to the doctor, worried about how the extra bill will fit in amid rapidly rising costs of groceries and other essentials. \n \n\n \n \u201cI have to cut back,\u201d the 45-year-old says. \u201cAll kinds of stuff has gone up.\u201d \n \n\n \n \u201cThe way all these prices are shooting up, can\u2019t the government put a stop to it?\u201d she adds. \n "

"US central bank raises interest rates for first time since 2018"

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