Getty ImagesThe US central bank has cut interest rates for a third time, despite fears that the move will boost the economy and threaten to reignite inflation.
The decision was expected, setting the Federal Reserve’s key lending rate in a target range of 4.25% to 4.5%.
That’s down a full percentage point since September, when the bank began cutting borrowing costs, citing price stability and a desire to address economic weakness.
Reports since then suggest that the job market has been more resilient than expected while prices have continued to rise.
Inflation, which measures the pace of price increases, was 2.7% in the US in November – up from 2.6% a month earlier.
Low interest rates influenced economic activity by making borrowing easier. This can encourage businesses to invest or expand and households to spend on items such as cars. But if demand increases, higher prices usually follow.
Fed officials – who want to see inflation around 2% – have said they are aware of the risks.
On Wednesday, forecasts released by the bank showed policymakers adjusted their plans to cut rates next year lower than expected just three months ago.
The Bank’s key rate is now expected to fall to 3.9% by the end of next year, instead of the 3.4% previously forecast.
Meanwhile, inflation is forecast to hover around 2.5 percent.
John Riding, chief economic adviser at Brean Capital, said he believed the Fed would be wiser to hold off on a cut at this meeting, even if that risks upsetting markets expecting a cut.
“The U.S. has made a lot of progress since the peak of inflation to where it is now, and it’s at risk of undoing that progress, possibly even partially reversing that progress,” he said. “The economy looks strong… Is it too soon?”
The Fed’s announcement comes a day before the Bank of England is set to make its latest interest rate decision in the UK, where Inflation rate is also high recently..
Its benchmark rate is widely expected to remain steady at 4.75%.
Monica George Michael, associate economist at the National Institute of Economic and Social Research, said the Bank of England was facing interest rates. Increase in wages And rising prices for services that are hotter than in the US.
He added that some of the government’s plans, including an increase in the minimum wage, would put pressure on inflation.
“The Bank of England is trying to be cautious,” he said.
But he warned that inflationary risks also exist in the United States, where President-elect Donald Trump has supported policies such as broad import tariffs.
Mr Riding said he believed the Bank of England – which, unlike the Fed, does not have to consider unemployment as part of its mandate – was more transparent about the reality of the inflation situation. But is answering.
“The bank [of England] The Fed is becoming a more prudent central bank than it is now,” he said.