Inflation Dogs the USA
The US Federal Reserve has opted to delay interest cuts, keeping the interest rates at a 23-year-high, as a result of inflation dogging the US economy.
Their interest rates are between 5.25% and 5.5%, constant for the past few months inflation has slowly increased to 3.7% (measured according to the Consumer Price Index). It almost doubled the Federal Reserve’s target of 2%. Consumer Price Index (CPI) is a general measure of the price of all goods and services in a country’s economy. It is the primary way of measuring inflation rates.
Although they have somewhat recovered from the 9.1% in June 2022, inflation rates in 2024 have been slowly rising much to the USA’s disappointment. From 3.1% in January to 3.5% in March to 3.7% in April.
Although the US population may be frustrated by this delay, raising interest rates is an important step taken towards combatting inflation. Governments hope that increasing borrowing costs will make people spend less money, slowing price increases.
CNBC says the increase was driven by shelter and energy costs. According to them, energy rose by 1.1% after a 2.3% increase in February, and shelter costs rose by 0.4% after a 5.7% increase in the past year.
Lack of Progress Towards Mitigating Inflation
US Federal Reserve chairman, Jerome Powell, said that the decision to hold interest rates was unanimous after the board had examined the inflation data. He said interest rate cuts were “likely to take longer than expected” and that inflation has shown a “lack of progress” towards their target of 2%.
Powell also mentioned the ‘geopolitical risks’ associated with hastily changing interest rates. He referred to the Russia-Ukraine war. The Feds are keeping a keen eye on any further developments in the Israel-Gaza conflict.
Earlier this year, many analysts predicted heavy interest rate cuts by the end of the year, but looking at current data this seems unlikely.
The next Federal Reserve Open Market Committee will be held in early June. Meanwhile, the Bank of England will announce its decision on UK interest rates on Thursday next week. Many believe it will go down the same path of holding interest rates as the Feds.
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Cover Image– Investopedia