FX.co ★ US Fed raises benchmark rate to highest level in last 20 years

While the global financial market is fearing a recession in the United States, the Federal Reserve continues tightening its monetary policy. The regulator has its own view on the situation. Thus, the Fed has raised the key interest rate to the highest level in the last 20 years, ignoring the risk of a recession.

Although the central bank’s decision was quite expected, it caused a lot of questions. The Federal Reserve decided not to take a pause in the cycle of the key rate hike. Instead, it hiked the benchmark rate by 25 basis points to 5.25–5.5%. At present, it is difficult to predict the effect of the key rate hike on the overheating economy. The fact is that the loan price will increase while the amount of money in circulation, demand, and purchasing power will fall, thus spurring a slowdown in production and the economy. However, the Federal Open Market Committee is not planning to change its stance. A new rise in the key rate will be one more step towards the highest employment rate and 2% inflation. At present, the benchmark rate is at its highest level since 2001, and the Federal Reserve does not exclude new hikes. The regulator will assess monetary policy tightening and its influence on economic activity, as well as existing economic and financial conditions.

Earlier, Chief FX Strategist at Societe Generale Kit Juckes predicted that the US dollar could fall to its 3-year low amid the key interest rate cut by the Fed. The analyst supposes that the greenback will have to deal with problems for a while.