After attempting to increase borrowing costs earlier in the year, the head of US’ central bank said that authorities could ease off interest rate increases as early as next month.
In an effort to reduce inflation (the rate at which prices go up), the Federal Reserve raised its interest rates by 0.75 percent since June.
Jerome Powell, Fed Chairman, stated that it was sensible to reduce the pace of moving to evaluate the effects. The comments boosted the market. The Dow Jones Industrial Average jumped by more than 2% in the US. S&P 500 increased 3%, and Nasdaq jumped 4.41%. While the dollar dropped, other international exchanges also rose.
After years of low borrowing costs and a steady rise in prices, the US is leading a shift that has seen central banks increase interest rates to stop rising. The Fed’s key rate of interest has increased from almost zero in March, to over 3.8% in March – the highest rate since January 2008.
In order to reduce demand for large-ticket items like cars and homes, the authorities raise interest rates. This is done to lower inflation which currently stands at its lowest level in 40 years.
Higher borrowing costs in the US have already impacted sectors like housing. Home sales are down sharply because of this.
It can take months to absorb the effects of these moves. Many people would lose their jobs if the Fed causes a serious economic slowdown, according to analysts.
This is because businesses lose money when economies are shrinking, and can make cuts in their workforce.
Powell stated Wednesday that the full impact of tightening has yet to be seen.
“It makes sense to slow down the rate of our rate rises… The December meeting may be the right time to reduce the rate of increase.”
The comments of Powell come as inflation appears to be slowing in the US, according to signs. The inflation rate fell to 7.7% from its peak of 9.1% in June. Powell stated that the economy, and wage growth in particular, are too stable for comfort. He said that despite some encouraging developments, there is still a lot to do in price stability. However, he warned that although the Fed plans to increase rates at a faster pace, it will not raise them as quickly.