Fed to raise interest rate again amid core inflation pressure
The US is braced for an interest rate rise on Wednesday that could push the world’s largest economy into recession.
The Federal Reserve is expected to announce another quarter of a percentage point rise in its benchmark interest rate, to a range of 5% to 5.25%. It would be the central bank’s 10th consecutive rate rise as it prioritises the fight against rising prices. A year ago interest rates were close to zero.
Headline annual consumer inflation fell in the US in March, to 5% from 6%, but core inflation – which does not include volatile energy and food prices – edged up to 5.6% from 5.5%.
Economists are divided on whether the Fed should stop raising rates. Adam Posen, who runs the Peterson Institute thinktank in Washington DC, said it was important for the US central bank “to continue its hiking cycle given what the latest data is telling us”.
However, Robert J Shapiro, one of Bill Clinton’s economic advisers when he was president, said the Fed should stop in its tracks because it had done enough to calm the economy. Further rate rises risked a recession that was going to hurt low- and middle-income earners.
US economic growth slowed sharply in the first quarter of the year, to just 1.1% year-on-year, from 2.6% growth in the final three months of 2022. It was significantly less than the economists’ expectations of 2% growth.
“A decline in economic growth to 1.1% shows it is time for the Fed to pause,” Shapiro said.
“There is a significant lag between interest rate rises being imposed and them taking effect, and so we know there is more pain for the economy to come even without further rate rises.”
Neil Shearing, chief economist at the consultancy Capital Economics, said the Fed would increase rates by a quarter of a percentage
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