The Fed is raising interest rates again to combat the highest inflation in 41 years
The Fed is raising interest rates again to combat the highest inflation in 41 years

The Fed is raising interest rates again to combat the highest inflation in 41 years

The Federal Reserve raised a key U.S. interest rate for the fourth time this year on Wednesday in an aggressive bid to curb the highest inflation in four decades, signaling more rate hikes to come even as the economy bend.

DJIA SPX shares extended gains after Fed decision.

Higher rates raise the cost of borrowing for businesses and consumers and tend to slow the economy by making it more expensive to take out a loan, get a car or buy a home. And when the economy slows down, inflation tends to dissipate as well.

Rising rates – they are rising at their fastest pace since 1981 – already appear to be having a dampening effect on the economy. The Fed noted that “recent indicators of spending and output have eased.”

However, central bank officials have signaled that they are not about to budge. “Continued increases” in interest rates “will be appropriate,” the Fed said.

Read More :   Alison Riske Parents, Family, Wiki, Age, Net Worth

“While there are concerns about economic growth, the Fed has decided that in the fight against inflation, it will shoot first and ask questions later,” said chief economist Avery Shenfeld of CIBC World Markets.

Yet at the same time, the Fed tried to reassure Main Street and Wall Street that the economy was still on solid footing. The bank also noted that “job growth has been robust in recent months and the unemployment rate has remained low.”

“I don’t think the economy is in recession right now,” Fed Chairman Jerome Powell told a news conference. “We’re not trying to have a recession, and we don’t have to.”

A key question for economists is how far the Fed will need to raise its benchmark rate into “tight” territory to curb inflation. Rates are considered restrictive when they significantly slow the growth of the economy.

Read More :   Sorry – Daily Tribune

The level of rates right now fits what the Fed considers neutral – neither stimulating nor slowing the economy.

Powell did not commit to future rate hikes. Rates would rise, he said, but the Fed would make that decision based on incoming economic data.

Powell also did not reveal whether the Fed would raise rates by 50 or 75 basis points at its next policy meeting in September.

In the long run, the Fed’s goal is to return inflation to its 2% target. The cost of living rose to a near 41-year high of 9.1% in the 12 months to June, up from less than 2% just 18 months ago.

Read More :   HK Prediction Sunday 30 January 2022 Accurate and precise leaks

The inflation rate was at or below 2% in the decade preceding the pandemic.

However, US financial markets suddenly appeared to fear recession more than rising inflation. The yield on the 10-year Treasury note BX:TUBMUSD10Y has fallen 70 basis points since the Fed’s last meeting in June.

Traders in the federal funds futures market now expect the Fed to reverse course and cut rates in mid-2023.

Many economists see the situation differently. They believe the Fed may have to keep raising its benchmark rate to 5% or more to stem inflation.

In contrast, the Fed proposed in June to raise its benchmark rate to nearly 3.5 percent this year and nearly 4 percent next year.