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U.S. Interest Rates Rise Again by Sven R. Larson

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U.S. Interest Rates Rise Again

The Federal Reserve, the U.S. central bank, has raised interest rates for the third time since June. Fox Business reports:

The Federal Reserve on Wednesday raised its benchmark interest rate by 75 basis points for the third straight month as it struggles to bring scorching-hot inflation under control.

In its explanatory note, the Federal Reserve’s Open Market Committee, FOMC, explains:

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 3 to 3-1/4 percent and anticipates that ongoing increases in the target range will be appropriate. 

The FOMC also announced its intention to continue to reduce its holdings of U.S. sovereign debt. This means that the central bank has no plans to return to buying Treasury securities, as it did previously to support federal government borrowing.

In its motivation for its latest interest-rate hike, the FOMC points to inflation, which it says “remains elevated.” According to the Bureau of Labor Statistics, U.S. producer prices increased by 17.2% in August, the lowest annual rate since March 2021. Consumer prices rose by 8.3% in August, down from 9.1% in June, and 8.5% in July, and the lowest number since April.

On the same day as the Federal Reserve’s rate hike, yields on U.S. Treasury securities of most maturities increased. Securities with one- and two-year maturities returned more than 4% at the end of market trade on Wednesday, the highest yield rates since 2007.

A day before the Federal Reserve raised its federal-funds rate, the Swedish central bank, the Riksbank, raised its key interest rate by a full percentage point:

Inflation has increased more than [predicted] in the Riksbank’s June forecast, and is expected to increase further through the rest of the year. The Board believes that it is necessary to tighten monetary policy more in order to bring inflation back to its target rate … The Board has therefore decided to raise the governing rate by 1 percentage point to 1.75 percent.

The Bank of England is expected to raise its lead interest rate, the Bank Rate, at its September 22nd meeting.

Sven R. Larson is a political economist and author. He received a Ph.D. in Economics from Roskilde University, Denmark. Originally from Sweden, he lives in America where for the past 16 years he has worked in politics and public policy. He has written several books, including Democracy or Socialism: The Fateful Question for America in 2024.