The US central bank has signaled it is ready to reduce the pace of interest rate hikes due to slowing economic activity.
As the Federal Reserve raised its base rate by 0.75 percentage points, taking it to a range of 3.75 to 4 percent, it indicated that future increases may be smaller.
But Chairman Jerome Powell said consistently high inflation, and historically low unemployment, meant the final point at which rates could be fixed could be higher than expected.
Investors turned to the Bank of England, which gave its interest rate decision this afternoon. As it is officially known, for the bank rate increased by 0.75 percentage points to 3 percent, which was voted on by the Monetary Policy Committee by a vote of 7-2.
Inflation battle: The final point at which rates can be set could be higher than previously thought, says Federal Reserve Chairman Jerome Powell (pictured)
Powell said the “time is coming” where it would be appropriate to divert attention from the “historically fast” pace of growth, and look more closely at how high the base rate is to go.
He said there is often a lag between the Fed’s lifting rates, and the impact it has on the economy – meaning he was wary of going too far.
But inflation is still near a 40-year high, and low unemployment is doing little to offset the rise in the cost of living.
Powell said: ‘Incoming data suggests that the final level of interest rates will be higher than previously thought.’ The market had previously seen US rates peak 5 percent next year.
Central banks are increasing rates to encourage savings and to check rising prices.
But it also curtails economic activity, leaving the Fed with a difficult decision every time its rate-setting committee meets.
The Bank of England is facing a similar dilemma, as it prepares to give another rate hike today.
It is expected to opt for its own 0.75 percentage point increase, the largest since Black Wednesday in 1992, taking its base rate to 3 percent.
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Credit: www.thisismoney.co.uk /