On December 14th, the Federal Reserve raised its federal-funds rate by another 0.5 percentage points, to a target range of 4.25-4.5%. The central bank’s policy board, the Federal Open Market Committee, explains its decision:
Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.
The goal, explains the Open Market Committee, is to return inflation to 2% “over the longer run.” To do so,
The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive
for the purposes of returning the economy to 2% inflation.
The day after the Federal Reserve decided to raise its lead interest rate, the European Central Bank, ECB, made a similar decision:
The Governing Council today decided to raise the three key ECB interest rates by 50 basis points and, based on the substantial upward revision to the inflation outlook, expects to raise them further.
The Governing Council emphasizes that interest rates are going to “have to rise significantly” to roll back inflation to 2%. Inflation in the euro zone remains elevated, with the rates for both October and November exceeding 10%. Meanwhile, numbers from the United States Bureau of Labor Statistics indicate that American inflation, in both consumer and producer prices, is declining.
