Despite indications of weaker economic growth in the US, the central bank, the Federal Reserve, has kept to its policy of steadily moving interest rates up. Alan Greenspan’s rate setting Open Market Committee is focusing on keeping inflation under control and so pushed the cost of borrowing up 0.25% to 3%.That compares with a low 2% in the euro zone to try to stimulate economic growth and 4.75% in Britain, where inflationary pressures and soaring property prices have been a problem. This is the eighth increase since the Fed started moving rates up last June. The policymakers seem unconcerned about signs of weakness in the US economy, seeing inflation as a greater evil.
The world’s largest economy is under pressure and expanded at its slowest pace in two years in the first quarter of this year.
Higher energy prices mean consumers and businesses have been spending less, while at the same time the personal consumption expenditure index – a key gauge of US inflation used by the Fed – rose 0.5% in March.