US interest rates increased again by 0.75 percent

The Federal Reserve (Federal, the central bank of the United States) announced yesterday that it will raise US interest rates significantly again. A further 0.75% will be added – already the sixth rate hike in the US this year.

Control inflation

The purpose of the rate hike is to control high inflation. Food prices in the US are rising at an alarming rate as wages lag. Interest rate hikes should ensure that growth in the economy slows somewhat, causing prices to rise faster.

US interest rates range from 0.25% to 4.00% in 2022

Earlier this year, the US base rate was still at 0.25%. The first increase came in March, a more cautious 0.25%. The next move was one of 0.5% in May, followed by increases of 0.75% in June, July and September – now the fourth time.

With this increase, the base interest rate is 4.00%. The rate has not been this high since the central bank cut interest rates from 4.25% to 3.5% in January 2008. That was almost 15 years ago.

Central Bank Rate vs. ECB Rate

An overview of the development of the US base rate compared to the European Central Bank (ECB) re-rate:

The ECB raised interest rates by 0.75% last week – but overall it still lags behind the central bank’s rate decisions. We saw that happen in 2008 and 2009 as well. In the period from 2016 to 2019, the central bank also raised interest rates rapidly, and nothing happened in Europe. This year, we again see the direction of interest rates on the line, albeit less quickly at the ECB than in the US.

Not the last rate hike in America

This won’t be America’s last rate hike. Federal Reserve Chairman Jerome Powell has hinted at further increases in interest rates — albeit in smaller steps. Powell doesn’t particularly want to end rate hikes any time soon. As far as he’s concerned, raising interest rates too low is less bad.