The US Federal Reserve concluded its two-day policy meeting Wednesday by raising its benchmark interest rate by 0.75 percentage points for the second consecutive month to tackle soaring inflation.
The central bank’s Federal Open Market Committee lifted the target range of the federal funds rate to 2.25% – 2.5%.
For consumers in the Cayman Islands this means a higher cost of borrowing. Local banks adjust their prime rates, priced at a margin above the federal funds rate, in line with US interest rate movements.
Interest on flexible rate loans and mortgages will, as a result, rise in step with the Fed’s interest rate actions.
In a statement, the FOMC said recent indicators of spending and production have softened, while job gains in recent months were robust at a low rate of unemployment.
Amid high inflation, caused by supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures, the Fed is focused on returning inflation to about 2%.
Inflation in the US accelerated to 9.1% in June driven particularly by high energy and housing costs.
Further interest rate hikes are expected later this year with the federal funds rate expected to reach 3.25%-3.5% by the end of 2022.
Investors have faced this week with trepidation amid concern that overzealous interest rate hikes could drive the economy towards a recession.
In addition, the largest tech and industrial companies are announcing their second quarter results and US gross domestic product figures will be released on Thursday.
US GDP is widely anticipated to show two consecutive quarters of economic contraction, indicating a recession.
Worse than forecasted corporate earnings would confirm that assessment but so far companies have not reported a significant fall in income despite high inflation.
Earlier in the day, markets were calmed by earnings reports from Microsoft and Alphabet.
Microsoft missed earnings estimates but pointed to its robust cloud computing business.
Alphabet’s quarterly revenue dropped to the slowest pace in two years, but the internet advertising giant also said its search and cloud businesses had performed well despite economic headwinds.
Consumer company Kraft Heinz beat net sales expectations in the second quarter and affirmed its profit guidance for the year but also raised prices 12% to offset higher costs.
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