The U.S. prime rate remains at record high: Fed signals continued fight against inflation

In their latest decision, the U.S. Federal Reserve continues its course of combating inflation. The federal funds rate, at which commercial banks can borrow money from the central bank, remains unchanged at a high level, between 5.25 and 5.5 percent – the highest level in over two decades. Fed Chair Jerome Powell emphasized the ongoing concerns about high inflation, which is "still too high." Additionally, Powell stated that it might take more time before the Fed can be confident that inflation rates are indeed declining. Interest rates have been raised by more than five percentage points in quick succession since March 2022 to counter inflation. Although there have been no further interest rate hikes recently, the robust economy of the United States surprises. The unexpected trend of a rising inflation rate, with an increase from 3.2 percent in February to 3.5 percent in March, despite the target rate of 2 percent, raises concerns. Powell remains optimistic that the inflation rate could fall during the current year, but recent data have tempered this confidence. Even though the rate hikes have led to a slowdown in price increases, the Fed still has a long way to go before reaching the targeted inflation goal. According to Fed estimates, the federal funds rate is expected to fall to an average of 4.6 percent by 2024, but whether and when the originally anticipated three decreases will occur remains uncertain. Markets are expecting a reduction as early as September, and analysts are speculating on possibly only one rate cut for the entire year. Powell was reticent regarding the number of rate reductions and referred to the need for ongoing data analysis to arrive at a decision. Meanwhile, the Fed announced that it would start reducing its bond holdings more slowly from June. On the foreign exchange market, the Fed's statements had an immediate impact: The U.S. dollar lost value, while the euro, in contrast, surpassed the 1.07-dollar mark.