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As expected, this Wednesday the president of the Federal Reserve, Jerome Powell announced a new increase in central bank interest rates. In its struggle to combat inflation, the Fed has decided to raise three-quarters of a point, that is, 75 basis points.
This after year-on-year inflation in the United States accelerated again and rose to 8.6%. in May. A record in 40 years in the United States.
This new rise was already announced news. A few weeks ago, Powell assured that the priority was to stop inflation, otherwise the Fed would have to be more aggressive, which is why he suggested that a rate increase was coming.
“What we need to see is inflation coming down in a clear and convincing way. And we’re going to keep pushing until we see that.”
In the remainder of 2022, the Fed plans other increases as part of the “normalization” of the US economy. So far, this is the third consecutive rate hike announced by the Federal Reserve. This is the biggest increase in interest rates in 27 years.
What does this increase mean for your pocket?
It should be noted that the increase in central bank interest rates is the increase in US money, which It translates into an increase in the cost of the loans that banks grant to their commercial and individual clients.
A table shows us the predictions of the actions to be taken by the Fed in the following years. Expectations in March indicated that by the end of 2024 interest rates are believed to be around 2.10%. Finance expert Gabriela Siller shows a summary of what is expected:
For your pocket, it is good to understand how to calculate this increase in interest rates for expenses, and that is each 0.25% increase in interest rates equals an additional $25 a year in interest on every $10,000 in debt. So a 50 basis point increase will translate to an additional $50 in interest for every $10,000 in debt.
For his part, President Joe Biden has made it clear that he will respect the decisions made by the Fed and its independence. He made this known in a meeting he held days ago with Jerome Powell and Treasury Secretary Janet Yellen.
The United States is not the only country affected by inflation, other central banks in the world have also done the same to control inflation.