Saturday, 21 May 2022
WorldUS Federal Reserve raises interest rates and ensures that the price of...

US Federal Reserve raises interest rates and ensures that the price of oil increases inflation

Rising oil prices lead to higher inflation and the lockdown over a new wave of coronavirus in China worsens crude supply disruptions, US Federal Reserve Chairman Jerome Powell said on Wednesday, May 4.

“Price pressures have spread to a broader range of goods and services. Rising crude oil and other commodity prices resulting from the Russian invasion of Ukraine are creating additional upward pressure on inflation,” Powell said at a news conference after the central bank’s statement to raise interest rates.

“The COVID-19-related lockdown in China is likely to further exacerbate supply chain disruptions,” Powell added.

The Fed earlier raised its benchmark interest rates by 50 basis points after the Fed’s two-day meeting ended.

The aggressive measure of the US central bank, the highest rate increase since 2000, took the reference rate to 0.75% to a range of 1%, from its previous level of 0.25% to 0.5%, to fight record inflation.

“Inflation is too high and we understand the difficulties it is causing. And we are moving quickly to bring it down. We have the tools we need and the determination it will take to restore price stability,” the Fed chairman said.

“It is essential that we bring inflation down if we are to have a sustained period of strong labor market conditions that benefit everyone,” Powell added.

The official said the US economy expanded at a solid 5.5% pace last year, but overall economic activity slowed in the first quarter.

It noted that the personal consumption expenditures (PCE) price index, the Fed’s preferred gauge of inflation, rose 6.6% in March, on an annual basis.

See also: The US economy unexpectedly contracts by 1.4% year-on-year in the first quarter of 2022

The Fed chairman noted that the central bank is unlikely to set interest rates above 50 basis points in the coming months.

“Increase [de la tasa de interés] of 75 basis points is not something that the committee [FOMC] be actively considering. I think the expectations are that we will start to see inflation flatten out,” he said.

“I would say we have a good shot at a soft landing,” Powell added.

However, the official noted that there is a broad feeling among FOMC members that an additional 50 basis points of interest rate hikes should be on the table for the next two meetings.

The Fed chairman added that Russia’s war against Ukraine is likely to curtail economic activity abroad and further disrupt supply chains, creating a spillover effect on the US economy through trade and other means.

*Gustavo A. Delvasto D. contributed to the writing of this note.

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